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Market history · Markets ·

The yen carry-trade unwind

On 31 July 2024 the Bank of Japan raised its policy rate to 0.25%. Together with softer US jobs data, this pushed the yen sharply higher and forced investors to unwind trades funded in cheap yen. On 5 August the Nikkei 225 fell around 12%, its worst day since 1987, and the VIX volatility index spiked briefly above 60.

The panic was short-lived; Japanese and US equities recovered much of the fall within days. But it showed how crowded, leveraged currency trades can turn a modest policy change into a sudden liquidity event.

The takeaway

Leverage funded in one currency and invested in another is a hidden dependency in many portfolios.

Asset classes:StocksBonds

This is a retrospective about a past event, provided for general information. It is not investment advice, does not describe RockLake's positioning at the time, and past performance is not a guide to future performance. Read the risk warning.

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