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Yen Carry Trade Unwind Triggers Risk-Off Move
Yen surges 3% as carry trade unwind accelerates after BOJ rate hike and weak U.S. jobs data. Hedge funds face margin calls, with prime brokers estimating $1.5 trillion in notional exposure. A coordinated policy response could break the cycle.
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A sharp reversal in the yen carry trade hit risk assets Monday as the yen surged 3% against the dollar, its biggest single-day gain in over a year. The move followed a surprise Bank of Japan rate hike and a shift in U.S. recession expectations, traders said.
The yen carry trade, which funds positions in high-yield currencies and risk assets with cheap yen loans, has been a staple of hedge fund positioning for years. Last week, margin calls began to cascade after the Nikkei 225 fell 5% in two days. The unwind accelerated as the yen broke through 145 per dollar, a level many leveraged funds used as a stop-loss, traders said.
Exposure to the trade was concentrated in large macro funds and some multi-strategy firms, according to estimates from two prime brokers. The total notional value of yen-funded carry positions was roughly $1.5 trillion, with about a third held by hedge funds, the brokers said. The exact losses are not yet public, but a senior credit officer at a major bank told Reuters that several funds have requested emergency liquidity lines.