The Japanese yen still poses ‘a very big risk’ to global markets. Here’s why.

The yen carry trade is still alive, setting the stage for the possibility of a further unwind that may rattle U.S. stocks

By

Vivien Lou Chen

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Last Updated: Sept. 5, 2024 at 4:09 p.m. ET
First Published: Sept. 5, 2024 at 2:59 p.m. ET

There’s one big factor behind early August’s scare in the U.S. stock market which hasn’t gone away and has little to do with a U.S. economic slowdown. It’s the popular currency approach known as the carry trade.

A month ago, the carry trade was blamed in part for a 12.4% plunge in Japan’s Nikkei index and a cascading global stock-market selloff as investors rushed to exit from the strategy. The Dow Jones Industrial Average

DJIA

-0.54%

and S&P 500

SPX

-0.30%

finished on Aug. 5 with their worst performances since Sept. 13, 2022, with the former plunging 1,033.99 points or 2.6%.

At the heart of investors’ concerns is the fear that much of the U.S. stock rally seen in recent years was the result of easy borrowing via carry trades. The carry trade is a strategy based on borrowing at a low interest rate and using the proceeds to buy higher-yielding currencies or assets. With the Bank of Japan maintaining ultralow interest rates for years, investors loaded up on stocks and other assets from other countries via trades funded by the Japanese yen.

read more at

https://www.marketwatch.com/story/the-japanese-yen-still-poses-a-very-big-risk-to-global-markets-heres-why-f0e949b5?mod=bulletin_ribbon

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The yen carry trade is still alive, setting…