Foreign assets funded by yen carry
Updated
What it is
The yen carry trade is a strategy of borrowing cheap Japanese yen to fund investment in higher-yielding foreign assets such as US Treasuries, other sovereign bonds, and risk assets, profiting from the interest-rate differential plus any depreciation of the yen against the funding leg. It has long been one of the largest sources of cross-border capital flow, with Japanese banks' short-term external loans tied to such carry trades estimated at around $350 billion.
Why it matters lately
The trade has been unwinding through 2026 as the Bank of Japan normalizes policy: after raising its policy rate to 0.75% by December 2025 and pushing 10-year JGB yields to about 1.86%, the BOJ hiked again to 1.0% in June and then to 1.25% on September 18, 2026, a 31-year high. The yen jumped more than 5 yen against the dollar in two days in early September 2026, entering the 155-yen range, as speculators unwound yen-funded positions and Japan's GPIF was expected to reduce overseas asset holdings.
Asymmetric Analytics view
Inference (AA): Unwinding yen-funded positions is a key channel for global liquidity tightening, tying BOJ policy to pressure on foreign bonds and risk assets elsewhere in the graph.