Slate Money Global Carry Trade Chaos
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Jan 31, 2026 Volatility in Japanese government bonds and how a spike in yields can topple global carry trades. The weakening US dollar and market reaction to Trump's Fed nominee. Corporate America’s muted messaging after immigration raids and the pressure from tech workers pushing CEOs to respond.
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Yen Carry Trade Fueled Global Markets
- Japan's low-rate era enabled a massive yen carry trade that funded global investment for decades.
- The sudden rise in Japanese yields unravels that funding and can shock global markets and FX.
Higher JGB Yields Undo The Carry
- Japanese government bond yields rising toward 4% removes the incentive to borrow yen and invest abroad.
- That effectively unwinds a multi-trillion dollar carry trade and can strengthen the yen sharply.
Interest Rates Drive FX Moves
- Exchange rates largely reflect differences in overnight interest rates set by central banks.
- Higher policy rates attract capital and strengthen a currency, while lower rates weaken it, barring instability concerns.