The Japanese yen has appreciated significantly of late, rising about 4% since September and strengthening from the 160 level against the US dollar to break past 153. However, if the yen continues to strengthen, triggering a rapid unwinding of “carry trades,” it could spark a stock market sell-off—hitting high-valuation US technology stocks particularly hard.
For years, Wall Street traders have favored the yen carry trade, which involves borrowing funds in Japan at near-zero interest rates and investing the capital in other markets—primarily US equities—to seek higher returns.