Feedback Loop
Anatomy of a Carry Trade Unwind
Why a strengthening yen can feed on itself
1
Borrow yen, low rates
2
Convert
to dollars
3
Invest abroad
higher-yield assets
4
Yen strengthens
or BOJ raises rates
5
Unwind pressure
funding cost rises
6
Forced yen buyback
further yen strength
SELF-REINFORCING
LOOP