The Japanese yen has strengthened 3% this month amid expectations that the Bank of Japan (BOJ) will accelerate interest rate hikes, fueling concerns about the closure of the yen carry trade and its potential impact on US tech stocks and global stock markets.
On September 11, 2026, at 8:16 AM, Bloomberg News reported that the strengthening yen is bringing renewed attention to the risk of Yen Carry Trade positions being closed. This comes amid concerns that a further accelerated withdrawal of positions by investors could trigger selling pressure and impact global stock markets, particularly technology, growth, and emerging market assets.
Historically, investors have taken advantage of Japan's low interest rates by borrowing yen at low costs and investing in higher-yielding assets such as US stocks or emerging market assets. This strategy has worked well during periods of yen weakness. However, a rapid yen appreciation would increase the cost of repaying the loans, potentially forcing investors to sell other assets to raise cash to close their positions.
This risk has increased after the yen strengthened by about 3% against the dollar this month, reaching its strongest level since February, driven by expectations that the Bank of Japan (BOJ) will accelerate interest rate hikes, coupled with pressure from U.S. Treasury Secretary Scott Basen to support a stronger yen. The rapid movement of the currency has raised concerns in the market that some investors are beginning to close their yen short positions and may subsequently reduce their borrowed investments in other asset classes.
Andrea Gabellone, head of global equity at KBC Securities, stated that the yen is one of the most important warning signs to watch for in global stock markets right now, as speculative positions remain high, with the greatest risk to technology stocks. Historically, cryptocurrency markets have also been affected.
This week, the yen strengthened past the key level of 155 yen per dollar and touched 152.89 yen per dollar on Tuesday before fluctuating around 154 yen per dollar currently. This is as hedge funds are positioning positions to support a yen that surpasses 150 yen per dollar by the end of the year, with some long-term options targeting 140 yen per dollar.
This situation increases the risk to global financial markets because if the closure of the Yen Carry Trade accelerates, funds may need to sell highly liquid and profitable assets to raise cash. This would make technology stocks, a key driver of the stock market this year, as well as high-growth stocks, most vulnerable to selling pressure.
Dilin Wu, a strategist at Pepperstone, stated that high-beta global growth stocks, which trade at high valuations, are often the hardest hit because they tend to benefit from low-cost yen borrowings. If closing positions accelerates, emerging markets and high-value US technology stocks will be the sectors to watch.
The impact could also ripple through stocks not directly reliant on yen-denominated funds if widespread deleveraging occurs. Bloomberg strategists indicate that foreign investors are reducing their holdings in South Korean and Taiwanese stocks while increasing their positions in Japanese stocks, making the Japanese stock market potentially more vulnerable if the Yen Carry Trade is rapidly shut down.
For Japanese companies, the stronger yen also puts pressure on earnings, especially for exporters with a large portion of their revenue from overseas, as that revenue is less valuable when converted back to yen. This makes automotive stocks and large hardware technology companies at risk.
David Clewell, co-manager of Multi-Asset Global Income Strategy at T. Rowe Price, stated that 152 yen per dollar is a key level to watch, as it closes to the exchange rate assumption used by Japanese companies in formulating earnings forecasts. If the yen strengthens beyond this level, Japanese corporate earnings growth over the next 12 months could stabilize or even turn negative, putting pressure on the relatively high-value Japanese stock market, which is heavily reliant on earnings growth.
The current situation has led some analysts to recall events in 2567, when the BOJ raised interest rates, coupled with weak US employment data, prompting investors using borrowed money to rush to close their Yen Carry Trade positions, creating a shockwave across global markets. The Nikkei index plummeted 12% in a single day, the largest drop since 2530, while the Nasdaq and Bitcoin also experienced sharp declines.
However, this situation differs from 2567 because investors are more prepared for a BOJ interest rate hike. The market has largely factored in the possibility of a 0.25% rate increase at the September 17-18 meeting. Furthermore, the yen's appreciation this time is more orderly, reducing the risk of a sudden surge in cash raising.
The structure of the Yen Carry Trade has also changed. The Bank of Japan's (BOJ) policy interest rate is currently 1%, up from 0.25% in 2567, while the U.S. Federal Reserve (Fed) has recently lowered its interest rates, resulting in a narrower yield spread between borrowing yen and investing in dollar-denominated assets.
While the true size of the yen carry trade is difficult to estimate, data from the Bank for International Settlements (BIS) indicates that yen-denominated loans and deposits to non-bank borrowers overseas, used as one indicator of carry trade activity, totaled approximately 42 trillion yen in the first quarter. This is down from a record high of 45.7 trillion yen set for late 2567, but still nearly double the level seen 10 years ago.
However, these positions can quickly rebound. Hedge funds had previously reduced their net selling positions in the yen by almost half after the US and Japan jointly intervened in the currency markets at the end of July, but have since increased their positions to near pre-intervention levels.
The market's direction going forward will therefore depend on signals from BOJ Governor Kazuo Ueda regarding interest rate trends. BOJ officials have signaled that they may be open to raising interest rates more frequently than every six months, but still want to maintain flexibility in future policy decisions.
Wei Li, Global Head of Investment Strategy at BlackRock, stated that as Japan emerges from a prolonged period of deflation and interest rates return to normal, the attractiveness of the Yen Carry Trade is not as clear as in the past. He also noted that the rapid appreciation of the currency used as a source of funding, while risky assets remain largely unaffected, may reflect some inconsistency in the market.
Reference: www.bloomberg.com
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