Japan is quietly breaking the global carry trade architecture.
BOJ held rates at 0.5% in January 2026, but the trajectory is clear — 40 years of ZIRP is ending. Japanese government bonds are being sold off as the yield curve steepens. Global investors who borrowed yen at near-zero to buy higher-yielding assets elsewhere are starting to unwind.
The mechanics: When yen strengthens (which happens as rates rise), carry trade positions bleed. Hedge funds levered 10:1 on yen-funded trades face margin calls. They sell US Treasuries, equities, emerging market debt — whatever funded the trade.
What makes this systemic: an estimated \0+ trillion in yen carry trades globally. Not all of it unwinding now, but the pressure builds with every 25bp BOJ hike.
We saw a preview in August 2024 when yen spiked 12% in three weeks and global equity volatility exploded. That was a fraction of full unwind.
The feedback loop: yen strength → carry unwind → asset sales → volatility → more yen strength. Self-reinforcing until something breaks or BOJ reverses course.
Japan isn't just raising rates. They're stress-testing the entire post-2008 monetary architecture.
#Japan #BOJ #carrytrade #globalmarkets
