On August 5, 2024, the financial world went through one of the fastest capital crashes, driven by the unwinding of the Yen Carry Trade.
How the mechanism worked
For years, institutions and funds borrowed yen at a near-zero rate, converted it and bought higher-yielding assets.
💣 The trigger
On July 31, 2024, the Bank of Japan unexpectedly raised its rate to 0.25% (a 15-year high) and signaled further tightening.
📉 How the crash started
The rate gap began to narrow and the yen rose sharply. To pay back their yen debts, investors started selling off all their other assets en masse.
📊 The fallout of the “great unwind”:
- Nikkei 225 plunged 12.4% in a day.
- S&P 500 dropped 3%.
- The crypto market lost hundreds of billions of dollars.
💡 The main lesson is that even the most profitable strategy, reliable for years, collapses in an instant if it rests on a single macroeconomic assumption.
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