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The Japanese Yen has become a “cheap source of capital” for the world for decades thanks to near-zero interest rates. This is the foundation for the carry trade strategy: borrow Yen, convert to higher-interest currencies, then invest in income-generating assets.
When the market is stable, this strategy generates steady profits from interest rate differentials. But if exchange rates reverse or monetary policy changes unexpectedly, the entire system can spiral into “unwind” – forcing investors to liquidate assets to repay Yen, causing widespread volatility as seen in August 2024.
In this article, Viet Hustler will guide you through six detailed sections to understand the Yen carry trade – from mechanics to systemic volatility potential, and why the August 2024 unwind scenario is unlikely to repeat at the end of 2025:
Section 1 – Mechanics and Risks: How carry trade works, why the Yen was once the “global funding currency”, and the breaking points when exchange rates reverse.
Section 2 – The 8/2024 Shock: BoJ unexpectedly hikes rates, Yen surges, global markets forced to close positions – from Nasdaq to Bitcoin all plunge.
Section 3 – Late 2025 Situation: BoJ continues tightening policy, JGB yields rise sharply, but Yen is no longer a safe haven – on the contrary, it's depreciating.
Section 4 – Current Carry Trade Scale: Yen borrowing flows have cooled, speculative positions more balanced, system clearly less leveraged.
Section 5 – Why the Shock is Unlikely to Repeat?: No more policy surprises, markets are prepared, Yen no longer reflects risk-off sentiment as before.
And finally, the carry trade “bomb” is no longer primed to explode, but the era of cheap Yen is gradually closing, and that will reshape global capital flows.
