Yen Carry Trade

A popular currency strategy where traders borrow Japanese yen at Japan's historically ultra-low interest rates and invest the proceeds in higher-yielding assets, pocketing the interest rate differential. The yen carry trade has been one of the most consistent macro trades for decades, but it carries significant risk when the yen suddenly strengthens, forcing rapid unwinding of positions. The violent unwinding of yen carry trades in August 2024, triggered by a surprise Bank of Japan rate hike, caused flash crashes across global equity markets.