In this video: While everyone is watching the Fed, a much bigger risk may be building in Japan.
On December 19, the Bank of Japan could trigger a massive Yen carry trade unwind worth up to $4 trillion — and history shows Bitcoin and risk assets don’t escape unscathed.
In this video, we break down what the Yen carry trade is, why it matters, and whether this move could spark a sharp sell-off or a major buying opportunity. Video by Coin Bureau.
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What the Yen Carry Trade Is:
Borrow Low, Invest High: Investors borrow JPY at near-zero interest rates (Japan's long-term low rates) and convert it into higher-yielding currencies like USD, AUD, or NZD.
Profit from the "Carry": They invest this money in assets like US Treasuries, stocks, or emerging market bonds, earning the interest rate difference (the "carry").
Liquidity Engine: This has pumped massive liquidity into global markets, fueling risk assets for decades.
Why It Matters (The Risks):
Market Shocks: If Japanese rates rise (like the recent Bank of Japan hike), the cost of borrowing JPY increases, making the trade less profitable or unprofitable.
Forced Unwinding: Traders rush to sell their foreign assets to buy back Yen to repay loans, creating a "fire sale".
Global Impact: This unwinding can cause significant drops in global stocks, bonds, and emerging markets, disrupting financial stability.
Yen Volatility: It leads to sharp Yen strengthening (as money flows back to Japan) and currency market chaos.
Fragility: The trade's success relies on low rates and stable exchange rates; any shift can trigger widespread selling, making it a major systemic risk.
In essence, it's a quiet, leveraged bet on Japan's low rates; when that bet reverses, the global financial system feels it.
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