The cover No. 004 New
The yen carry trade is free money with a trapdoor
Borrow yen for almost nothing, park it where it pays 4 or 5 percent, keep the difference. It works for years. Then one Monday in August 2024 it took Japan's stock market down 12 percent.
Front and center
That's ¥157,500,000 at 157.5 yen per dollar.
You put in $100,000. The rest is borrowed.
The gap is 2.6 points a year.
Smaller number = stronger yen = bigger debt. You borrowed at 157.5.
Breakeven is 153.5. If the yen gets stronger than this, the trade lost money.
The gap, over the time you hold.
The yen ended where you borrowed it.
26.3% of the $100,000 you put in.
Your lender wants more money. Now.
The next day the Nikkei bounced 10 percent.
A toy for understanding the idea. Not financial advice.
Swap pricing, fees, and actual deposit rates are left out.
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