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A close-up of a Japanese yen banknote
Currency

Carry trade, explained

The Yen Carry Trade, Explained — and Every Time Japan or the US Stepped In (1985–2026)

RaymondRates.my5 min read

For thirty years the easiest trade in finance was borrowing yen. Last Friday Japan and the US bought yen together to stop it — the first joint purchase since 1998.

28 years
since the last joint US–Japan yen purchase
17 June 1998 to 31 July 2026
−12.4%
Nikkei 225, in one day
5 Aug 2024, when the trade unwound
2.6 pts
Japan vs US interest-rate gap now
was 5.3 points in July 2024

What the carry trade actually is

The trade, in three steps1Borrow yenJapan charges about 1%→2Swap to dollarsSell the yen you borrowed→3Buy US assetsThey pay about 3.6%The catch: you owe yen. If the yen goes UP, your debt grows and the profit vanishes.
Borrow where money is cheap, park it where money pays more, keep the difference. Add leverage and small gaps become big profits.
0%1%2%3%4%5%6%0.1%5.375%July 2024gap: 5.3 points1%3.625%Today (Aug 2026)gap: 2.6 pointsBank of JapanUS Federal Reserve
The gap is the whole business. Japan has been raising rates while America has been cutting, so the trade pays roughly half what it did two years ago.
  • Japan kept money almost free. Its rate stayed under 0.5% from 1995 to 2024. The world borrowed there.

What it does to the stock market

One-day close-to-close fall, Monday 5 August 2024Nikkei 225 (Japan)−12.40%TOPIX (Japan)−12.23%FBM KLCI (Malaysia)−4.63%Nasdaq (US)−3.43%S&P 500 (US)−3.00%Japan fell hardest. Everything else was caught in the spillover.
Monday 5 August 2024. The Bank of Japan had raised rates on 31 July and weak US jobs data landed on 2 August — so traders had to buy back the yen they owed, all at once.
How far the yen rose, how far shares fell, and how long they took to get backOct 1998  ·  S&P 500Yen +13% in 3 days−19.3%Made it all back — 1998 still finished higherAug 2024  ·  Nikkei 225Yen +10% in under 4 weeks−25.5%Back within a week2007–09  ·  S&P 500Yen +34% over 15 months−56.8%Took 5½ years — a credit crisis underneath
The yen rises, shares fall — every time. Note how different the timeframes are: three days in 1998, fifteen months in 2007–09. Shares come back quickly when it is only positioning; the one that took years had a credit crisis underneath, not a carry trade. Yen moves measured on Federal Reserve noon rates.
  • It feeds on itself. A rising yen swells the debt, forcing more buying, lifting it further.
  • Margin calls, not earnings. Nothing changed at the companies. Even Bitcoin fell 20%, says the BIS.
  • The bounce depends on what is underneath. Positioning mends in days. A credit crisis takes years.

Every time Japan or the US stepped in

Japan’s intervention, by year (trillion yen)← Sold yen (to weaken it)Bought yen (to prop it up) →19954.9619997.64200320.43200414.83201114.3020229.19202415.322026*11.73*2026 is the confirmed 28 Apr–27 May total. The 30–31 July operations are not disclosed yet.Years with no intervention at all are left out — including 2005–2009, 2012–2021, 2023 and 2025.
Japan intervenes often — but look at the direction. For most of this period it was SELLING yen to keep exports cheap. Buying yen to prop it up has happened in only a handful of years.
  • 1985: the famous one. The Plaza Accord sent the dollar down 40% in two years.
  • Japan usually acts alone. The US stayed out in 2022 and 2024, saying only it “understood”.
  • Direction matters more than size. The G7 joined in 2011 — but to weaken the yen.
A close-up of a Japanese yen banknote
Japan's Ministry of Finance decides on intervention; the Bank of Japan carries it out. · Photo: Unsplash

What just happened

How last week unfoldedThu 23 JulWeakest since 1986past 163 per dollar→Thu 30 JulJapan acts aloneest. ¥8.45tn, unofficial→Fri 31 JulThe US joins infirst with US since 1998→Mon 3 AugBoth confirm ityen back near 157
The yen hit its weakest in about 40 years, Japan spent big on its own, and then Washington did something it had avoided for a generation.
Why this one is different. Japan has bought yen alone many times. On 31 July 2026 the US Treasury bought yen alongside it — and unusually, the New York Fed funded the purchase by selling euros rather than dollars. Finance Minister Katayama and Treasury Secretary Bessent both confirmed the operation, and Japan said it “will not hesitate to conduct further joint intervention”.

Why Malaysians should care

The Tokyo skyline at dusk with Tokyo Tower lit up
A stronger yen makes a Japan holiday, a Japanese car and imported parts all more expensive in ringgit. · Photo: Unsplash
  • Your Japan trip costs more. The ringgit fell 2.18% against the yen last week.
  • 2024 hit Bursa, not the ringgit. The FBM KLCI fell with world markets. The ringgit rose.

What to watch

  • Late AugJapan’s MOF disclosure for 30 July–27 Aug. It will finally reveal what last week actually cost.
  • OngoingWhether the US joins again. Bessent said he would not hesitate — that threat alone moves the yen.
  • Your sideIf you are saving for a Japan holiday, watch the live MYR/JPY rate rather than guessing.
Not financial advice. This is general information as at 3 August 2026, drawn from Japan’s Ministry of Finance intervention record, Bank of Japan and Federal Reserve policy statements, and published market reporting. It is not a forecast of where the yen or any market is headed, and Rates.my does not issue price targets. The 30–31 July 2026 intervention amounts are market estimates and have not been officially confirmed.

Sources & further reading

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top blaster·6m ago
Shorting the S&P 500 could be profitable if the unwinding yen carry trade sparks further panic, might be an opportunity

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