Yen carry trade
Updated
Summary
The yen carry trade is borrowing in yen, where interest rates are low, and holding higher-yielding assets in other currencies, earning the rate gap as long as the yen does not rise enough to wipe it out. It is carried on through several channels: short yen futures, OTC forwards and swaps, cross-border yen loans and bank funding, so no single dataset measures it. In August 2024 the BIS put its size at a rough middle estimate of ¥40 trillion ($250 billion), saying that figure was if anything too low because of data gaps. The BIS names the yen and the Swiss franc as the main global funding currencies. This node is the standing position and its incentive; the forced closing of those positions is the separate node theme:yen-carry-unwind.
Key numbers
BOJ uncollateralized overnight call rate target: around 1.25% (decided 2026-09-18, effective 2026-09-24) (as of 2026-09-24). Source: boj.or.jp
Federal funds target range: 3.75-4.00% (raised 0.25 point on 2026-09-16) (as of 2026-09-16). Source: federalreserve.gov
US-Japan policy-rate gap (AA arithmetic from the two official rates): about 2.50-2.75 percentage points (as of 2026-09-24). Source: boj.or.jp
Yen per US dollar (Fed H.10): 158.00-158.84 over 2026-10-13 to 10-16 (as of 2026-10-16). Source: federalreserve.gov
CME yen futures, non-commercial long / short (contracts of ¥12.5m): 191,256 / 141,049: net long about 50,200 contracts (about ¥0.63 trillion notional, AA arithmetic) (as of 2026-10-13). Source: cftc.gov
MOF yen-buying intervention, 2026-07-30 to 2026-08-26: ¥15,399.3 billion (after ¥11,734.9 billion in April-June 2026) (as of 2026-08-26). Source: mof.go.jp
BIS estimate of FX carry trade size before the August 2024 unwind: about ¥40 trillion ($250 billion), rough middle estimate, likely biased down (as of 2024-08-27). Source: bis.org
Cross-border yen bank claims on offshore non-banks (pre-August 2024): over ¥80 trillion (about $500 billion) (as of 2024-08-27). Source: bis.org
BIS estimate: JPY/USD response to a 25bp policy surprise in high-carry periods: almost 10% (CHF/USD about 4%); yen result barely significant (as of 2026-05-06). Source: bis.org
TOPIX one-day move on 2024-08-05: -12% (as of 2024-08-05). Source: bis.org
Japan net international investment position: ¥561,750 billion (portfolio assets ¥768,653 billion) (as of 2025-12-31). Source: mof.go.jp
Timeline
2026-10-13 — CFTC: non-commercial traders net long CME yen futures (191,256 long vs 141,049 short), though shorts rose 13,006 on the week. (Source: cftc.gov)
2026-09-18 — BOJ raises the call rate target to around 1.25% (7-2), effective 2026-09-24; flags Middle East effects on FX markets. (Source: boj.or.jp)
2026-09-16 — Fed raises the federal funds target range to 3.75-4.00%, keeping the US-Japan rate gap at about 2.5-2.75 points. (Source: federalreserve.gov)
2026-08-03 — Finance Minister Katayama confirms yen buying on 31 July (US Eastern time) jointly with the US Treasury; MOF later reports ¥15,399.3 billion for 2026-07-30 to 08-26. (Source: mof.go.jp)
2026-07-31 — BOJ holds at around 1.0% (8-1); Takata proposes 1.25%. July 2026 average yen rate was 162.33 per dollar (Fed G.5). (Source: boj.or.jp)
2026-06-16 — BOJ raises the call rate target to around 1.0% (7-1), effective 2026-06-17. (Source: boj.or.jp)
2026-05-06 — BIS Bulletin 124: crowded short positions in funding currencies amplify the currency response to policy tightening. MOF buys ¥4,675.9 billion of yen the same day. (Source: bis.org)
2026-04-30 — MOF sells dollars and buys ¥6,278.7 billion of yen, the first intervention of 2026 (none in January-March). (Source: mof.go.jp)
2026-04-21 — BOJ Financial System Report: IMM yen futures positions shifted to net short as the yen weakened in the second half of fiscal 2025. (Source: boj.or.jp)
2026-04-14 — IMF GFSR: the carry environment is less supportive and hedge-fund carry positioning raises the risk of sharp unwinds. (Source: imf.org)
2025-12-19 — BOJ raises the call rate target to around 0.75%, unanimously, effective 2025-12-22. (Source: boj.or.jp)
2025-12-10 — Fed cuts to 3.50-3.75%, the level it then holds through July 2026. (Source: federalreserve.gov)
2025-01-24 — BOJ raises the call rate target to around 0.5% (8-1), effective 2025-01-27. (Source: boj.or.jp)
2024-10-24 — BOJ Financial System Report attributes two-way dollar/yen swings to the accumulation and unwinding of yen carry positions. (Source: boj.or.jp)
Key actors and links
Bank of Japan (actor:bank-of-japan): Sets the yen policy rate that is the trade's funding cost; raised it from 0.25% (2024) to 1.25% (2026). Also executes FX intervention as MOF's agent.
Federal Reserve (actor:federal-reserve): Sets the dollar leg of the main rate gap; its 2026-09-16 hike to 3.75-4.00% offset part of the BOJ's tightening.
Yen carry unwind / reverse-carry stress (theme:yen-carry-unwind): The stress outcome: forced, correlated closing of yen-funded positions. This node is the standing position and incentive.
July-August 2024 yen carry unwind (event:2024-07-yen-carry-unwind): Template episode: BOJ hike on 2024-07-31, weak US payrolls on 08-02, TOPIX -12% on 08-05 (BIS Bulletin 90).
BIS (actor:bis): Main official source on carry size and mechanism: Bulletin 90 (¥40 trillion estimate) and Bulletin 124 (positioning amplifies tightening).
CFTC (actor:cftc): Publishes weekly yen futures positioning, the proxy BIS uses for carry activity; non-commercials were net long on 2026-10-13.
International Monetary Fund (actor:imf): GFSR April 2026 warned of a hedge-fund carry positioning overhang and less supportive carry conditions.
BOJ intervention (policy:boj-fx-intervention): Yen-buying intervention (decided by MOF, executed by the BOJ) in April-May and July-August 2026 limits yen weakness, a key carry return.
U.S. Treasury (actor:us-treasury): Joined Japan's 31 July 2026 (US Eastern time) yen-buying operation, per Japan's Finance Minister.
USD/JPY (market:usd-jpy): The trade's main price: carry pays while USD/JPY is stable or rising (about 158 in mid-October 2026) and loses when it falls fast.
Yen positioning data (indicator:yen-positioning): Positioning is the amplifier in BIS Bulletin 124; futures show only part of it, OTC forwards and loans are not published weekly.
BOJ normalization (policy:boj-normalization): Gradual BOJ hikes raise the funding cost; surprises relative to market pricing, not the level alone, drive the BIS amplification effect.
Yen funding cost (indicator:yen-funding-cost): Direct input: the cost of borrowing yen rises with the BOJ guideline.
Japanese foreign bond/equity flows (indicator:japanese-foreign-securities-flows): Japanese residents' foreign portfolio holdings (¥768.7 trillion end-2025) are a related, unlevered channel often confused with carry.
Foreign assets funded by yen carry (market:higher-yielding-foreign-assets): The asset side of the trade: whatever the borrowed yen funds, from US Treasuries to equities and EM currencies.
Why it matters now
The incentive is the rate gap, and it has not closed. The BOJ raised its overnight call rate target from 0.25% in mid-2024 to 0.5% (January 2025), 0.75% (December 2025), 1.0% (June 2026) and 1.25% (decided 2026-09-18, effective 2026-09-24). But the Fed stopped cutting at 3.50-3.75% in December 2025 and raised to 3.75-4.00% on 2026-09-16, so the policy-rate gap is still about 2.50-2.75 points. The yen also stayed weak: the Fed's H.10 shows about 158 yen per dollar on 2026-10-13 to 10-16, after a July 2026 average of 162.33. A carry trader is paid when the funding currency is cheap to borrow and stays weak, and both conditions still largely hold.
The risk side is the mechanism BIS Bulletin 124 (2026-05-06) describes: when speculators hold large short positions in a funding currency, a tightening surprise makes them close positions together, and the currency jumps more than the rate change alone explains. In high-carry periods a 25-basis-point surprise moved yen per dollar by almost 10% in the BIS sample, though the BIS calls the yen result only barely significant. August 2024 is the template: a BOJ hike on 2024-07-31 and a weak US jobs report on 2024-08-02 were followed on 2024-08-05 by a 12% one-day TOPIX fall and a VIX above 60 before the open. Two things differ in 2026. Japan's Ministry of Finance has been buying yen (about ¥11.7 trillion from April 30 to May 6, then a joint operation with the US Treasury on July 31, US Eastern time), which caps how weak the yen can get. And CFTC data show non-commercial traders net long, not short, yen futures on 2026-10-13. Inference (AA): the visible futures part of the trade is not crowded; whether OTC and loan-based carry is still large is UNKNOWN.
Risks and open questions
Bull case: Case that the trade stays large and stable: the US-Japan policy-rate gap is still about 2.5-2.75 points after the Fed's September hike, so the yen remains cheap to borrow. The yen is still weak, about 158 per dollar in mid-October 2026, and MOF intervention has worked as a ceiling on USD/JPY rather than a sustained push lower. Inference (AA): a capped but stable yen with a positive rate gap is close to ideal carry conditions. The BOJ has moved in small, telegraphed steps and, after August 2024, signalled it avoids hiking into unstable markets (Uchida, 2024-08-07), which lowers the chance of a policy surprise, the trigger BIS identifies. CFTC data showing speculators net long yen futures suggest the most visible, fastest-moving short-yen positions are not crowded.
Bear case: Case that the trade is fragile: the BOJ has raised rates five times since mid-2024 and one board member (Takata) already proposed a faster hike in July 2026, and the BOJ flags the Middle East situation's effect on financial and FX markets. A further hike combined with a Fed pause or cut would narrow the gap from both ends. Repeated MOF intervention, now coordinated with the US Treasury, adds a second source of sudden yen strength that carry traders cannot price. BIS estimated in 2024 that only a share of yen-funded trades was unwound and that the total was likely underestimated; most of the trade sits in OTC forwards and cross-border loans that are not published weekly, so a net-long futures reading can hide a large short-yen book elsewhere. IMF's April 2026 GFSR warned of a carry positioning overhang. A 2024-style shock (a BOJ surprise plus weak US data) could therefore produce a sharper move than the visible data imply.
Falsifiers: - Bull case fails if the BOJ raises its target to 1.5% or more while the Fed holds or cuts, narrowing the policy gap below 2 points. - Bull case fails if USD/JPY on Fed H.10 falls below 150 within a month without a matching narrowing of the rate gap. - Bull case fails if CFTC non-commercial yen futures swing back to a large net short and then reverse sharply within weeks. - Bear case fails if the BOJ hikes at a scheduled meeting and USD/JPY moves less than 2% over the following week. - Bear case fails if the October 2026 BOJ FSR or GFSR finds no material yen-funded leverage outside futures. - The 'intervention caps the yen' inference fails if MOF reports zero intervention for several months while USD/JPY rises above its July 2026 average of about 162.
Value accrual gate: Not a crypto asset. The carry return goes to leveraged borrowers of yen and is paid for by yen weakness persisting; Japanese savers and importers bear the weak-yen cost. A rate gap alone does not deliver the return: a fast yen rise can erase months of carry in days, and AA does not assume any asset gains from carry flows.
What to watch
BOJ Financial System Report (October 2026): any update on IMM positions, foreign hedge-fund leverage and yen funding. (2026-10-23 (15:00 Tokyo time)); Source: boj.or.jp
FOMC decision: a hold, hike or cut changes the dollar side of the rate gap. (2026-10-28 (2:00 p.m. Washington time)); Source: federalreserve.gov
BOJ Monetary Policy Meeting and Outlook Report: whether the BOJ moves beyond 1.25% and how it describes FX and market conditions. (2026-10-29 to 2026-10-30); Source: boj.or.jp
BOJ minutes of the 2026-09-17/18 meeting: dissent and any discussion of FX and carry positions. (2026-11-05 (8:50 a.m. Tokyo time)); Source: boj.or.jp
Weekly CFTC COT yen futures positioning: a return to a large net short would revive the BIS amplification set-up. (weekly (Tuesday positions, published later that week)); Source: cftc.gov
MOF monthly FX intervention release covering 2026-09-29 onward. (around end-October 2026 (monthly pattern; date not confirmed)); Source: mof.go.jp
IMF October 2026 GFSR full text, including its hedge-fund chapter: whether it quantifies yen-funded leverage. (landing page dated 2026-10-13; full text availability UNKNOWN); Source: imf.org
AA expectation: a combined shock (hawkish BOJ surprise plus weak US data) is the scenario most likely to turn this node into theme:yen-carry-unwind. (no scheduled date); speculative, no scheduled source
AA inference
Inference (AA): ELSI treats the yen carry trade as a stored-up exposure, not an event: it links Japanese monetary policy and Japan's FX policy to global risk assets through leveraged positioning. The node becomes active when three things line up: a rate gap that still pays, a weak but stable yen, and crowded short-yen positioning. AA tracks the gap (BOJ vs Fed decisions), the yen level (Fed H.10), positioning (CFTC) and MOF intervention as the inputs; the theme:yen-carry-unwind node carries the stress outcome. On current primary data the first two conditions hold and the third is not visible in futures, so AA does not treat an unwind as the base case.
Sources
BOJ Statement on Monetary Policy, 2026-09-18: 'The Bank will encourage the uncollateralized overnight call rate to remain at around 1.25 percent', effective 2026-09-24, decided by a 7-2 vote; Asada Toichiro and Sato Ayano dissented. (Source: boj.or.jp, accessed 2026-10-21)
The 2026-09-18 BOJ statement says attention is needed to 'the impact of the situation in the Middle East on financial and foreign exchange markets' and cites developments in foreign exchange rates among outlook factors. (Source: boj.or.jp, accessed 2026-10-21)
BOJ, 2026-06-16: the call rate guideline was set at around 1.0 percent, effective 2026-06-17, by a 7-1 vote (Asada dissenting; Governor Ueda absent). (Source: boj.or.jp, accessed 2026-10-21)
BOJ, 2026-07-31: the guideline was kept at around 1.0 percent by an 8-1 vote; Takata Hajime proposed around 1.25 percent, citing upside price risks from overseas demand shocks and changes in overseas financial conditions. (Source: boj.or.jp, accessed 2026-10-21)
BOJ, 2025-12-19: the guideline was raised to around 0.75 percent, effective 2025-12-22, unanimously. (Source: boj.or.jp, accessed 2026-10-21)
BOJ, 2025-01-24: the guideline was raised to around 0.5 percent, effective 2025-01-27, by an 8-1 vote. (Source: boj.or.jp, accessed 2026-10-21)
At its 2024-07-30/31 meeting the BOJ raised the guideline to around 0.25 percent, effective 2024-08-01, by a 7-2 vote (minutes released 2024-09-26). (Source: boj.or.jp, accessed 2026-10-21)
BOJ Deputy Governor Uchida, 2024-08-07: 'the Bank will not raise its policy interest rate when financial and capital markets are unstable', noting markets at home and abroad had been extremely volatile and the yen had appreciated significantly against the dollar. (Source: boj.or.jp, accessed 2026-10-21)
FOMC, 2026-09-16: the Committee raised the federal funds target range by 1/4 point to 3-3/4 to 4 percent; the page reports no dissents. (Source: federalreserve.gov, accessed 2026-10-21)
FOMC, 2026-07-29: the target range was held at 3-1/2 to 3-3/4 percent by a 9-3 vote; Hammack, Kashkari and Logan preferred a 1/4 point increase. (Source: federalreserve.gov, accessed 2026-10-21)
FOMC, 2025-12-10: the target range was lowered by 1/4 point to 3-1/2 to 3-3/4 percent. (Source: federalreserve.gov, accessed 2026-10-21)
Fed H.10 release of 2026-10-19: yen per US dollar 158.36 (Oct 13), 158.84 (Oct 14), 158.18 (Oct 15), 158.00 (Oct 16). (Source: federalreserve.gov, accessed 2026-10-21)
Fed G.5 release of 2026-10-01: monthly average yen per dollar 162.3295 (July 2026), 158.8476 (August 2026), 156.4171 (September 2026), versus 147.8629 in September 2025. (Source: federalreserve.gov, accessed 2026-10-21)
CFTC COT, CME Japanese yen futures (contracts of ¥12.5 million), as of 2026-10-13: open interest 373,502; non-commercial long 191,256, short 141,049, spreading 3,734. Non-commercial shorts rose 13,006 from 2026-10-06. (Source: cftc.gov, accessed 2026-10-21)
BIS Bulletin 124 (2026-05-06, Banerjee, Boneva, Pinter, Sushko): 'Significant short positions of carry traders in funding currencies amplify the impact of policy tightening'; it names the Swiss franc and yen as the two main funding currencies and uses CFTC non-commercial futures positions as its main carry proxy. (Source: bis.org, accessed 2026-10-21)
BIS Bulletin 124 estimates that in high carry-trade periods a 25-basis-point monetary policy surprise moves CHF/USD by about 4% and JPY/USD by almost 10%; the yen result is described as only barely significant, partly because of few tightening events. (Source: bis.org, accessed 2026-10-21)
BIS Bulletin 90 (2024-08-27): the FX carry trade going into the August 2024 event had 'a rough middle ballpark of ¥40 trillion ($250 billion)', if anything biased down by data gaps; speculative yen futures net shorts of about ¥2 trillion (about $14 billion) at peak were unwound; hedge fund OTC FX forwards had an upper bound near $160 billion. (Source: bis.org, accessed 2026-10-21)
BIS Bulletin 90: cross-border yen bank claims on offshore non-bank entities exceeded ¥80 trillion (about $500 billion) before the event; on 2024-08-05 TOPIX lost 12% in one day; 'Only a share' of trades predicated on low volatility and cheap yen funding appear to have been unwound. (Source: bis.org, accessed 2026-10-21)
BIS Quarterly Review, September 2024: 'The unwinding of carry trades on 5 August coincided with a widespread sell-off across global asset classes'; the VIX briefly exceeded 60 in pre-market trading before closing under 40, and prices recovered in less than a week. (Source: bis.org, accessed 2026-10-21)
BOJ Financial System Report, October 2024: the dollar/yen rate 'fluctuated somewhat significantly in both directions, affected by the accumulation and unwinding of yen carry positions' seeking the Japan-US yield differential. (Source: boj.or.jp, accessed 2026-10-21)
BOJ Financial System Report, April 2026: the yen depreciated against the dollar over the second half of fiscal 2025 and 'yen futures positions on the International Money Market (IMM) shifted to net short'; foreign hedge funds' leveraged JGB trading could transmit a global unwind to Japan's bond market. (Source: boj.or.jp, accessed 2026-10-21)
IMF GFSR April 2026, chapter 1: 'The carry environment has now become less supportive', citing a potential overhang in hedge funds' carry-trade positioning that could 'increase the risk of sharp carry trade unwinds'. (Source: imf.org, accessed 2026-10-21)
MOF: foreign exchange intervention of ¥11,734.9 billion in April-June 2026, selling US dollars and buying yen on 2026-04-30 (¥6,278.7 billion), 2026-05-04 (¥780.2 billion) and 2026-05-06 (¥4,675.9 billion); zero in January-March 2026. (Source: mof.go.jp, accessed 2026-10-21)
MOF: total intervention of ¥15,399.3 billion for 2026-07-30 through 2026-08-26. (Source: mof.go.jp, accessed 2026-10-21)
Finance Minister Katayama Satsuki, 2026-08-03: MOF bought yen on 31 July (US Eastern time) in coordination with the US Department of the Treasury, against excessive and disorderly moves, and will not hesitate to conduct further joint intervention. (Source: mof.go.jp, accessed 2026-10-21)
MOF: foreign exchange intervention was ¥0 for 2026-08-27 through 2026-09-28. (Source: mof.go.jp, accessed 2026-10-21)
MOF international investment position, end-2025: external assets ¥1,805,634 billion, liabilities ¥1,243,884 billion, net ¥561,750 billion; portfolio investment assets ¥768,653 billion. (Source: mof.go.jp, accessed 2026-10-21)
BOJ release calendar: Financial System Report (October 2026) on 2026-10-23 at 15:00 Tokyo time; Monetary Policy Meeting 2026-10-29/30 with the statement and Outlook Report on 2026-10-30. (Source: boj.or.jp, accessed 2026-10-21)