Yen carry trade explained: what Japan at 3% means for Hong Kong
A yen carry trade borrows cheap yen to buy higher-yielding assets. On 5 August 2024 its unwinding sent the Nikkei down 12.4%; the Hang Seng fell 1.46%. Because the Hong Kong dollar is pegged, yen swings pass almost directly into HKD prices of Japanese goods and travel.
Japan’s long rates have reached levels last seen in the 1990s, and the yen carry trade is back in the headlines. Here is how the trade works, what happened when it unwound in 2024, and which channels reach Hong Kong.
What is a yen carry trade?
A yen carry trade borrows in yen, where interest rates have been near zero for decades, and invests the money where returns are higher. It has four steps:
What is a yen carry trade?
- 1. Borrow
- What happens
- Take a yen loan or sell yen forward at a low interest rate
- 2. Convert
- What happens
- Exchange the yen into US dollars or another currency
- 3. Invest
- What happens
- Buy higher-yielding assets, such as US Treasuries or equities
- 4. Unwind
- What happens
- Sell the assets, buy back yen and repay the loan
Selected entries from the table below. Its dates, units, definitions and limitations still apply.
| Step | What happens |
|---|---|
| 1. Borrow | Take a yen loan or sell yen forward at a low interest rate |
| 2. Convert | Exchange the yen into US dollars or another currency |
| 3. Invest | Buy higher-yielding assets, such as US Treasuries or equities |
| 4. Unwind | Sell the assets, buy back yen and repay the loan |
The trade earns the rate difference as long as the yen stays stable or weakens. If the yen strengthens quickly, the cost of repaying jumps, and many positions are closed at once. That forced selling is what spreads the shock to other markets.
How big is it?
No official total exists, because the trade can take the form of loans, bonds, swaps or forwards. The BIS gives several measures:
| Measure (BIS) | Size |
|---|---|
| Yen credit to non-banks outside Japan, Q1 2024 | About US$880 billion (¥133 trillion) |
| Of which yen loans | About US$271 billion (¥41 trillion), up from ¥25 trillion in Q2 2021 |
| Notional yen FX swaps and forwards, end-2023 | US$14.2 trillion |
The figures overlap and are not additive. The swap figure is a notional amount, not money at risk.
What happened on 5 August 2024?
The Bank of Japan raised its rate to 0.25% on 31 July 2024, and weak US data followed. Carry positions unwound together.
| Measure | Move |
|---|---|
| Nikkei 225, 5 August 2024 | −12.40% to 31,458.42 (Nikkei) |
| VIX | Closed at 38.57, from 23.39 on 2 August |
| US dollar–yen | 161.73 (10 July) to 143.95 (5 August), −11.0% |
| Hang Seng Index, 5 August 2024 | −1.46% to 16,698.36 (China Daily HK, Xinhua) |
| HKD per 100 yen, monthly average | 4.9578 (July 2024) to 5.3302 (August 2024), +7.5% |
Nikkei 225 and Hang Seng Index on 5 August 2024
The Nikkei’s point fall was its largest ever, and in percentage terms its second largest after October 1987. Hong Kong’s market was hit far less. The S&P 500 had recovered its losses by 9 August, according to the BIS.
Where are Japanese rates in 2026?
| Bank of Japan decision | Policy rate | Japan 10-year that day |
|---|---|---|
| 31 July 2024 | 0.25% | 1.07% |
| 24 January 2025 | 0.50% | 1.238% |
| 19 December 2025 | 0.75% | 2.021% |
| 16 June 2026 | 1.00% | 2.655% |
| 18 September 2026 | 1.25% | 2.981% |
Source: Bank of Japan, Ministry of Finance. The 1.25% policy rate is the highest since 1995. The 10-year closed above 3% for the first time on 2 September 2026 (3.006%) and reached 3.111% on 7 October. The next meeting is on 29 and 30 October.
Why is the yen still weak?
Japanese rates are rising, but US rates have risen faster. The gap between US and Japanese 2-year yields has widened again in 2026:
| Date | US–Japan 2-year gap |
|---|---|
| 10 July 2024 | 4.28 points |
| 5 August 2024 | 3.63 points |
| 5 January 2026 | 2.27 points |
| 29 July 2026 | 2.73 points |
| 6 October 2026 | 2.86 points |
As long as borrowing yen costs much less than holding dollars, the incentive behind the trade remains. The dollar reached 163.86 yen on 29 July 2026, its high for the year. Japan’s Ministry of Finance intervened with about ¥27.13 trillion in 2026, including operations from late July to late August.
How fast can it turn?
Speed is the risk. Twice in 2026 the yen gained about 4% within a week (FRED DEXJPUS):
| Period | US dollar–yen | Change |
|---|---|---|
| 29 July to 3 August 2026 | 163.86 to 156.96 | −4.2% |
| 1 to 9 September 2026 | 160.03 to 153.50 | −4.1% |
Neither episode produced a repeat of August 2024, but each showed how quickly positions can be cut.
How does it reach Hong Kong?
Through the peg. Because the Hong Kong dollar is tied to the US dollar, HKD per 100 yen moves with the dollar–yen rate. When the yen jumped in August 2024, the cost of 100 yen in Hong Kong dollars rose 7.5% in one month. For a Hong Kong household, a yen carry unwind shows up first as more expensive Japan trips, Japanese goods and yen assets.
| Month | HKD per 100 yen |
|---|---|
| July 2024 | 4.9578 |
| August 2024 | 5.3302 |
| December 2025 | 4.9904 |
| June 2026 | 4.8751 |
| August 2026 | 4.9371 |
Through the stock market. On 5 August 2024 the Hang Seng fell 1.46%, a fraction of the Nikkei’s loss. A single day does not show how exposed Hong Kong would be to a larger or longer unwind.
Through Hong Kong’s own carry trade. Carry trades are not only a yen story. In June 2025, after heavy inflows pushed HIBOR down, the HKMA said that the wider Hong Kong dollar to US dollar rate gap “incentivised carry trade activities that sold HKD for USD”, and the weak-side limit of 7.85 was triggered. The mechanism is the same: borrow in the cheap currency, hold the expensive one, and unwind when funding costs change.
To see how a Hong Kong dollar amount compares across local and US measures over time, try the past money calculator.
Compare the same HKD amount in the calculator →
Estimates of the yen carry trade depend on definition and are not additive. Daily exchange rates are New York noon rates from FRED; HKD per 100 yen figures are monthly averages from this site's data. The Hang Seng figure is from a news report of the closing level, not from the index provider's own release. One day's market moves do not establish what caused them.
Questions & answers
What is a yen carry trade in simple terms?
Borrowing yen at low Japanese rates, converting it into another currency and investing in assets that pay more, such as US bonds or stocks. The profit is the interest difference, provided the yen does not strengthen sharply before the loan is repaid.
How big is the yen carry trade?
There is no single figure because definitions differ. The BIS estimated yen-denominated credit to non-banks outside Japan at about US$880 billion in the first quarter of 2024, of which yen loans were about US$271 billion. Yen-related FX swaps and forwards had a notional value of US$14.2 trillion at the end of 2023.
How did Hong Kong stocks react on 5 August 2024?
The Hang Seng Index fell 1.46% to 16,698.36. On the same day the Nikkei 225 fell 12.40%. Hong Kong's market was hit far less than Japan's.
Why does the yen matter to someone who holds Hong Kong dollars?
Because the Hong Kong dollar is pegged to the US dollar, a move in the dollar–yen rate shows up almost one-for-one in what Japanese goods, holidays and yen assets cost in Hong Kong dollars. From July to August 2024 HKD per 100 yen rose from 4.96 to 5.33, about 7.5%.
Source
- BIS Quarterly Review, September 2024 - The yen carry trade ↗
- BIS Bulletin No 90 ↗
- Nikkei Indexes - Nikkei 225 records ↗
- China Daily Hong Kong (Xinhua) - Hang Seng Index closes 1.46% lower, 5 August 2024 ↗
- Bank of Japan - Statements on monetary policy, 2026 ↗
- Ministry of Finance Japan - JGB interest rates ↗
- Ministry of Finance Japan - Foreign exchange intervention operations ↗
- FRED - Japanese yen to one US dollar (DEXJPUS) ↗
- HKMA - Response to media enquiries on the weak-side Convertibility Undertaking, 26 June 2025 ↗