The Beginning of the End...
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Description
But the problem was that the entire trade relied on one assumption that held everything together, that Japanese yields would stay near zero forever. But in 2024, that assumption broke when the Bank of Japan ended its yield curve control policy, and Japan raised interest rates for the first time in 17 years. And then they raised them again. And immediately following that second-rate hike decision, the S&P 500 dropped 6%, and Japan's index, the NICI 225, plummeted over 12% in a single day, drop since 1987. It was a clear signal that markets were officially spooked. Because when Japanese yields rise, two things happen. One, borrowing in yen becomes more expensive. And two, hedging currency risk becomes more expensive too. And suddenly, the free money trade isn't so free anymore. And this was the beginning of the end for the yen carry trade.
The short explains that a key assumption underpinning a trade started to fail in 2024, when the Bank of Japan ended its yield curve control policy and Japan raised interest rates for the first time in 17 years. After the first rate hike, the video says Japan raised rates again, and it links this sequence to sudden market declines. Immediately after the second-rate hike decision, the S&P 500 is described as dropping 6%, while Japan’s index, the NICI 225, is said to have fallen over 12% in a single day, with the move described as the biggest since 1987. The explanation then connects rising Japanese yields to both more expensive yen borrowing and more expensive currency-risk hedging, concluding that the “free money trade” was no longer free. The segment frames this as the beginning of the end for the yen carry trade.
Viewers highlighted the contrast between serious finance topics and a light or unserious delivery, calling it “the fun way,” and invited others to subscribe for finance, business, and economics content. Multiple comments described the message as good and specifically praised the shorts format. One viewer added an interpretation related to public debt being effectively supported if the Bank of Japan continues buying enough government debt obligations. Overall sentiment is positive about both delivery and value, with no explicit criticism of the topic presented.
Topics · finance · stock market · markets · debt markets · economics · business
Questions answered
- What assumption supported the yen carry trade before it started to break in 2024?
- That Japanese yields would stay near zero forever.
- What market moves followed the Bank of Japan’s 2024 rate hikes, and what did rising Japanese yields do to the yen carry trade?
- After the second rate-hike decision, the S&P 500 dropped 6% and Japan’s NICI 225 fell over 12% in one day. Rising Japanese yields made yen borrowing more expensive and made currency-risk hedging more expensive, ending the “free money trade” conditions behind the yen carry trade.
- Why do rising Japanese yields make yen carry trades more expensive?
- They raise the cost of borrowing in yen and increase the cost of hedging currency risk.