เข้าใจ Yen Carry Trade & Unwind Yen Carry Trade

Yen Carry Trade is one of the key engines driving the global money market, including currency, stocks, bonds, interest, gold, to emerging markets in many countries.

If you ever wonder...

+ Why is the yen sometimes hard like a "rocket"?

+ Why do global stock markets fall simultaneously?

+ Why is the USD / JPY close to 160 and suddenly plummets so fast?

The answer often involves Yen Carry Trade and Unwind itself.

This article will explain it in a simple way with examples and suit people who really want to understand the principles.

⭐ Yen Carry Trade?

Carry Trade is a strategy that "borrows a currency with very low interest and invests it in other, higher-yielding assets."

And Japan has been the lowest-interest country in the world for more than 20 years.

Why the yen?

Because...

The Japanese interest rate (BOJ) has long been near 0%.

This makes the "cost of recovery very low."

Investors around the world therefore like to use the yen as Funding Currency.

⭐ Visual Yen Carry Trade Sample

Suppose:

+ Japanese loan investors came to ¥10,000,000, 0% interest rate.

+ USD / JPY exchange rate = 100

+ In exchange for dollars, $100,000.

He put $100,000 into US bonds at 4% annual interest.

Complete 1 year:

+ $104,000 more

It looks like a soft profit because the cost is almost zero.

As long as...

✔ The currency is still still still.

✔ Foreign interest is also higher.

✔ Yen doesn't get stronger.

Carry trade is also the "sweetest deal in the world."

⭐ So what's the Unwind Yen Carry Trade?

Unwind = Retroactive state closure

Is the opposite of Carry Trade.

Investors will...

1. Sell USD currency assets

2. Convert the dollar back to the yen.

3. Debt the borrowed yen

The problem is...

When many people "parade to do it at once" → Demand to buy the yen skyrocketing → the yen strengthening very quickly.

That's why we often see USD / JPY graphs fall by ten points in a matter of hours.

⭐ An example of an Unwind situation that causes "heavy pain."

Continuing from the original example:

+ Investors redeemed $104,000 for yen.

+ But there is a global fear (Risk-Off).

+ Global investors parade to close Carry Trade

+ Solid yen from USD / JPY 100 → 90

Would have:

$104,000 × 90 = ¥9,360,000

But at the start, he recovered ¥10,000,000.

It means a loss of ¥640,000.

Despite interest gains, losses on currency are heavier.

Which is why Carry Trade is an easy-looking game... but very risky.

⭐ Brief summary

+ Yen Carry Trade = Loan Yen Low Interest → Invest USD High Interest

+ Profit = interest difference + if the yen weakens → gains

+ Unwind = Selling USD back to yen → Stiffening yen immediately

+ result = global volatility