Introduction

For decades, Japan’s zero-rate policy provided the lubricant for one of the most powerful forces in global finance: the yen carry trade. Investors borrowed cheaply in yen and deployed capital into higher-yielding assets across the globe: U.S. Treasuries, European bonds, emerging markets, equities, and, increasingly, crypto.

But now, with Japanese 10-year yields climbing toward 1.64%, their highest since 2008, the cost of this funding base is shifting. The carry trade, conservatively estimated at $0.8 to $1.5 trillion in scale, faces its first serious stress test in over a decade.

The implications go far beyond bond markets. Through cross-market liquidity channels, an unwind in carry risk could shock crypto trading strategies, volatility, and capital flows in ways that most traders are not prepared for.