The Yen carry trade is dying. Before April 2025, the USD/JPY currency pair showed a close correlation with the 10Y rate differential between US and Japanese bonds. This was driven by investors borrowing in Yen to fund higher-yielding US Dollar assets through the carry trade. That relationship broke down after "Liberation Day," when trade war uncertainty triggered a surge in market volatility and forced investors to unwind some of their carry trade positions. Meanwhile, the 10Y Treasury note yield is now trading ~2.0 percentage points above the Japanese 10Y Government Bond Yield, falling -1.0 percentage point since April 2025, near the lowest gap since 2021. Yet, USD/JPY continued to move higher as the US Dollar strengthened against the Yen, despite the narrowing yield gap, breaking away from the interest rate differential that historically drove the pair. In other words, the carry trade is losing its influence, with the Yen no longer driven primarily by rate differentials as investors increasingly price in Japan’s heavy debt burden and rising debt servicing costs. Japan’s rising debt costs are becoming impossible to ignore.

The US just put the global carry trade on life support. @Legendaryy on the show today: “This move by the Treasury is global volatility control. They want to lower global volatility, and that then should be helpful for the market to be able to go up again. The easier translation here would be to say: We want Japanese rates to be suppressed so capital can keep flowing into the US through the carry trade. If that system comes under stress, we will intervene again to keep it alive. But if the market is relying on the US now to intervene when Japanese rates are getting too high, that makes the market more fragile. The size of the carry trade would grow. That would make the intervention bigger, the potential fallout bigger, and that in itself could induce additional volatility.”

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Is this an accurate summary of the situation with JPY? 1/ Japan runs up massive public debt in the 1990s–2000s after asset bubble collapses 2/ Central bank keeps rates near zero for decades to fight deflation and keep the debt serviceable 3/ The world borrows in JPY almost for free and leverages up (aka the yen carry trade) 4/ That cheap leverage flows into higher-yielding assets, including US equities and bonds 5/ Today the Bank of Japan is raising rates to normalize policy amid inflation and a weak yen 6/ Higher Japanese rates + stronger yen force carry trades to unwind 7/ This creates selling pressure that puts US equities at risk 8/ Japan intervenes to support the yen 9/ That’s not enough so now the US Treasury joins in by buying yen ??

Warsh choosing inflation has taken pressure off the Japanese yen, which is up 2.5% today as the dollar exchange rate falls back below 160. If the yen rally continues and the short-term rate differential between the U.S. and Japan narrows, the yen carry trade can unwind quickly.

🚨 WARNING: MONDAY WILL BE THE WORST DAY OF 2026!! Japan just hit the panic button. They will dump OVER $6 TRILLION of foreign securities, mostly U.S. Treasuries, stocks, and ETFs. If you hold any assets right now, you MUST be prepared for the biggest sell-off of the year: The BOJ is moving capital back into Japan. And the biggest carry trade in history is starting to unwind... This is NOT normal. Here's what's really happening: For decades, Japan kept interest rates near zero. That made the yen the cheapest funding currency in the world. Investors borrowed trillions of yen. And invested that money into U.S. Treasuries, stocks, real estate, crypto, and markets across the globe. That trade is now breaking. Japan is dealing with soaring debt. A rapidly aging population. Massive pension obligations. And years of pressure from a weak yen. Now policymakers want that capital to come home. By any means necessary. Finance Minister Satsuki Katayama said pension funds, including GPIF, the world's largest pension fund, should make substantially larger investments in Japanese assets instead of foreign ones. GPIF alone manages around $1.8 trillion. Hundreds of billions of dollars are now at the center of this shift. Japanese investors have already sold tens of billions of dollars worth of U.S. Treasuries this year. And the Bank of Japan's latest rate hike only gives investors another reason to keep money at home. This is the Reverse Carry Trade. And it's one of the biggest liquidity risks in the world. Because when Japanese money comes home... Someone else has to buy what Japan is selling. More Treasuries hit the market. Bond yields move higher. Liquidity dries up. And financial conditions tighten everywhere. That's how market stress spreads. Quietly at first. Then all at once. After decades of financing global markets... Japan is starting to finance itself. And that changes everything. More volatility. Less liquidity. That's not a good combination. Pay attention. Most people won't realize why markets are collapsing until it's already happening. I’ve studied markets for over a decade and called nearly every major top and bottom. If you want to survive the 2026 cycle, follow and turn notifications on. I warned you before. And I'll warn you again soon. A lot of people will wish they paid attention earlier.

Japan's 30 year bond just crossed 4% for the first time in history and it could collapse the biggest free money trade on the planet For 25 years, Japan has been the world's ATM, you borrow yen at near zero, convert it to dollars, buy US Treasuries, US stocks, EM bonds, real estate or crypto, then pocket the spread between them Morgan Stanley estimates there's currently $500 billion in active yen carry positions and this single trade has funded global asset prices for an entire generation The math is now breaking, at 0.25% borrowing cost the trade still prints money, but at 0.75% short term and 4% plus long term the spread collapses When the trade breaks, the capital reverses, the yen gets pulled back to Japan and every asset bought with cheap yen loses a major bid Japan holds roughly $1.2 trillion in US Treasuries today, making it the single largest foreign creditor to the US government For decades, Japanese pensions and insurers were forced buyers of US debt because they could earn nothing at home, but now they're able to earn 4% in their own currency with zero risk TD Economics data already shows Japanese investors have sold $25 billion in foreign securities since January 2026 and that selling will only accelerate from here The US Treasury needs to fund a $2 trillion annual deficit while its biggest foreign buyer is walking away, which forces US yields higher to attract replacement demand Higher US yields mean higher mortgage rates, higher corporate borrowing costs and tighter financial conditions across the entire US economy Japan's debt to GDP ratio sits at 236%, the highest of any developed economy on earth That was sustainable when borrowing cost was zero, but at 4% on the 30 year the interest payments mathematically start eating the entire budget Prime Minister Sanae Takaichi just pledged tax cuts and higher defense spending, completely abandoning budget cuts, and the bond market is pricing the consequences in real time The closest comparison is the UK back in 2022, when PM Liz Truss promised tax cuts she couldn't pay for, the bond market turned on her overnight, the British currency crashed and she was forced out as Prime Minister in just 49 days, and Japan is sitting on an economy several times larger than the UK When the BOJ hiked to 0.75% in December 2025, Bitcoin dropped 2.8% in two hours and Ethereum dropped nearly 4% Today's move is significantly bigger and the assets most exposed are crypto, US mega cap tech, leveraged equities and emerging market bonds There are two scenarios from here In the first one, Japanese yields rise gradually, the carry trade collapses over 12 to 24 months, US yields stay persistently higher and risk assets face pressure but no actual crash, this is the most likely outcome In the second one, a currency shock or money panic sets off a fast collapse, forced selling rips through every asset class at once, this was the August 2024 mini version scaled up, low probability but massive impact The fact that the 30 year broke 4% in a single session today suggests scenario one is already in motion and the market is now testing for scenario two The yen carry trade is the single largest source of liquidity in global markets and it is now collapsing in slow motion Gold up 60% in 2025, silver up 119% and central bank buying at record levels, none of these are coincidences The smart money is already positioning for a world where Japan stops financing everyone else's deficits The 30 year crossing 4% is the line in the sand, the chart that printed today will be in macro textbooks in 10 years and almost nobody on CT is even watching it