--- title: "As the Dollar Climbs, the Yen 'Carry Trade' Stirs Again" description: "The yen has slid to around 161 per dollar, and a wide gap between U.S. and Japanese interest rates is reviving one of finance's biggest and least visible bets — the yen 'carry trade.' It's the same setup that triggered a violent global sell-off in August 2024, and analysts are watching it warily again." category: "Markets" category_url: https://boursel.com/category/markets author: "Kenji Nakamura" published: 2026-07-02T18:45:00.000Z updated: 2026-07-02T18:45:00.000Z canonical: https://boursel.com/article/as-the-dollar-climbs-the-yen-carry-trade-stirs-again tags: ["yen", "carry-trade", "currency", "bank-of-japan", "markets"] --- # As the Dollar Climbs, the Yen 'Carry Trade' Stirs Again The yen has slid to around 161 per dollar, and a wide gap between U.S. and Japanese interest rates is reviving one of finance's biggest and least visible bets — the yen 'carry trade.' It's the same setup that triggered a violent global sell-off in August 2024, and analysts are watching it warily again. One of the most powerful — and least understood — trades in global finance is quietly coming back to life. It is called the **yen carry trade**, and the last time it unwound, in August 2024, it briefly convulsed markets around the world. ## What the carry trade is The idea is simple, even if the plumbing is not. Because the **Bank of Japan** kept interest rates near zero for decades, the yen became the world's cheapest currency to borrow. Investors borrow in yen, convert the money into a higher-yielding currency like the dollar, and buy assets that pay more — U.S. Treasuries, stocks, emerging-market bonds. The profit is the **interest-rate gap**, often amplified with borrowed money, [as the World Economic Forum explains](https://www.weforum.org/stories/2024/08/explainer-carry-trades-and-how-they-impact-global-markets/). Borrow at near-zero in Tokyo, earn 4%-plus in the U.S., and pocket the difference. The hidden risk is the currency. The trade is, in effect, a bet that the **yen stays weak.** If the yen suddenly strengthens, the foreign-exchange loss can wipe out years of interest gains in days — and everyone rushes to unwind at once. (A **carry trade** profits from a rate gap between two currencies; its danger is that a move in the exchange rate can reverse the gains abruptly.) ## August 2024: how fast it can break That is exactly what happened last summer. On **July 31, 2024**, the Bank of Japan surprised markets by raising its policy rate to 0.25%. Two days later, a **weak U.S. jobs report** stoked fears of Federal Reserve rate cuts — narrowing the very gap the trade depended on. The yen jumped, and traders scrambled to buy back the currency they had borrowed. The result was a cascade. On **August 5, 2024**, Japan's **Nikkei 225 index fell 12.4%** — its worst single-day drop since 1987 — and the shock rippled worldwide, hitting U.S. stocks and sending volatility gauges spiking, [as the Bank for International Settlements later documented](https://www.bis.org/publ/bisbull90.pdf). Estimates at the time suggested a large share of carry positions were unwound within days. Markets stabilized quickly, but the episode became a case study in how a patient interest-rate bet can turn into a fast, global fire sale. ## Why it's back in focus Nearly a year later, the ingredients have partly reassembled. The **yen has weakened to around 161 per dollar**, near its softest in years, reflecting a strong dollar and a still-wide rate gap. That very weakness is what makes the trade attractive again: cheap yen to borrow, and a fat spread to earn. Crucially, the gap has narrowed but not closed. The Bank of Japan **raised its rate to 1.0% on June 16 — its highest since 1995** — and has signaled it will keep tightening gradually toward a neutral level, [Al Jazeera reported](https://www.aljazeera.com/economy/2026/6/16/japans-central-bank-raises-interest-rates-to-highest-level-since-1995). The U.S. Federal Reserve's rate remains far higher, so the incentive to borrow yen and buy dollars persists — but a tightening BOJ is precisely the kind of catalyst that lit the fuse in 2024. Analysts flag a few worries. The **size** of the trade is genuinely unknown — estimates range widely, from a few trillion dollars to well over ten, because much of it hides in hard-to-measure currency derivatives. The **trigger** is unpredictable: a sudden yen rally, a hawkish BOJ surprise, or a broad risk-off shock could all force an unwind. And **crowding** cuts both ways — the more investors pile in while the yen is weak, the larger the potential stampede when it turns. ## Why it matters For **investors**, the carry trade is a reminder that calm, profitable strategies can mask hidden fragility: the 2024 unwind showed how quickly leverage and a currency move can spread stress far beyond Japan. For **policymakers**, it complicates the Bank of Japan's job — normalizing rates after decades near zero risks jolting a trade built on those very low rates, which is why the BOJ is moving so cautiously. And for **markets broadly**, it is one of the clearer channels through which a shift in one country's monetary policy can become everyone's problem. Boursel makes no prediction and gives no investment advice; the point is that the conditions that produced last year's scare are partly back — and a bet that thrives on a weak yen is only ever as stable as the yen itself. ## Sources - [The market turbulence and carry trade unwind of August 2024 (BIS Bulletin No. 90)](https://www.bis.org/publ/bisbull90.pdf) - [Japan's central bank raises interest rates to highest level since 1995](https://www.aljazeera.com/economy/2026/6/16/japans-central-bank-raises-interest-rates-to-highest-level-since-1995) - [What are carry trades and how do they impact global markets?](https://www.weforum.org/stories/2024/08/explainer-carry-trades-and-how-they-impact-global-markets/)