--- title: 'Japanese Yen Carry Trade' source: 'https://youtube.com/watch?v=PmlqEB9KX0k' video_id: 'PmlqEB9KX0k' date: 2026-07-31 duration_sec: 121 --- # Japanese Yen Carry Trade > Source: [Japanese Yen Carry Trade](https://youtube.com/watch?v=PmlqEB9KX0k) ## Summary This video explains the Japanese yen carry trade, a strategy where investors borrow yen at zero or negative rates and invest in higher-yielding assets. It reveals the staggering scale of this trade, the paradox of the yen's continued fall after a rate hike, and why an unwinding could trigger a global financial crisis. ### Key Points - **Carry Trade Basics** [00:02] — Japan's central bank kept rates at zero, allowing investors to borrow yen for free (or even get paid to borrow). They exchange yen for dollars and invest in assets yielding more, creating a carry trade. - **Massive Scale** [00:15] — According to the Bank for International Settlements, about 40 trillion yen circulate in direct loans alone, plus another 14 trillion dollars through currency swaps. - **Bank of Japan Rate Hike** [00:29] — In June 2026 (likely 2024), the Bank of Japan raised rates to 1% for the first time in decades, yet the yen continued to fall to 162 per dollar, a 40-year low. - **The Paradox of a Falling Yen** [00:44] — Despite the rate hike, investors still borrow and sell yen because the gap with the US Federal Reserve rate remains huge. The yen keeps falling while this differential persists. - **Ticking Time Bomb** [00:59] — When the rate gap starts closing, investors will need to buy back more expensive yen to repay debts, forcing them to sell off assets globally—a potential market crash trigger. - **Historical Precedent** [01:14] — In August 2024, this mechanism caused the Japanese index to collapse in one day, worse than Black Monday in 1987. - **Vulnerable Economies** [01:29] — Countries with weak reserves like Turkey, Argentina, and Egypt would suffer most from a repeat. Russia is also at risk due to its reliance on oil prices, which often fall during global panic. - **Global Risk Off** [01:44] — During panic, investors sell risky assets worldwide including oil, directly hitting the ruble exchange rate and Russia's budget. - **Cheap Money Era Ending** [01:57] — The cheap money supporting the global economy for 40 years is running out, and uncertainties remain about what happens when it disappears completely. ### Conclusion The video warns that the yen carry trade is a ticking time bomb with a massive unwinding risk. As cheap money disappears, both developed and emerging markets could face severe turbulence. ## Transcript one country. Japan kept its central bank rates at zero. Any investor could borrow yen for almost free, and at some points even the Central Bank paid for this yen to be borrowed. The investor could then exchange the yen for dollars and invest in assets that yielded much more. This is called carry trade. According to the Bank for International Settlements, International Settlements, about 40 trillion yen are circulating in direct loans alone . And through currency swaps, another 14 trillion dollars. In June 2026, the Bank of Japan raised the rate to 1% for the first time since Japan raised the rate to 1% for the first time since seams. The yen has fallen to its lowest level in 40 years. Now it costs more than 162 to the dollar. And here's the paradox. The rate has been raised, but the currency is still falling because investors continue to borrow EU and then immediately sell it while the difference with the Fed rate remains huge. But sooner or later it will start to close. Then investors will have to buy back the more expensive shares in order to repay their debts. And to do this, we will have to sell off assets all over the world. It's just a time bomb, and sooner or later it will definitely explode. It was this it will definitely explode. It was this mechanism that, in August 2024, in one day caused the Japanese index to collapse more than Black Monday in 1987. Black Monday in 1987. and weak reserves, such as Türkiye, Argentina and Egypt, would suffer the most from a repeat of this scenario. By the way, this also applies to Russia. In times of such global panic, investors typically sell off risky assets around the world, including oil. The ruble exchange rate and the Russian budget directly depend on the price of oil. The cheap money that has kept the world going for 40 years is running out, and no one knows exactly what will happen when it runs out completely. Subscribe.