Supplement: #Yen carry trade liquidation
1. What global funds have been doing long-term:
Borrow yen (0% interest rate, low interest rate) → Sell yen → Buy high-yield assets worldwide (US Treasuries, EM, stocks, commodities, Crypto)
2. The mortal enemy of carry trades: Rapid appreciation of the yen.
As long as the yen suddenly rises = Everyone starts to be forced to liquidate positions and buy yen to repay debts
3. How does liquidation happen?
Sell stocks, bonds, gold, EM, Crypto
Sell everything that can be sold → Exchange for yen to repay debts
→ Global 'stampede-style deleveraging'
4. The result is:
> The entire market is falling, only the yen and US Treasuries are rising
> Any country with long-term low interest rates + currency stability + deep market may become a funding currency.
🇯🇵 1. Japan (Yen)
The world's largest carry currency, with interest rates long at 0% or negative, a huge financial system, ample liquidity, and cheap forex hedging.
Thus, the vast majority of global macro/hedge funds choose JPY as their first option for carry.
> If JPY rips, everything bleeds.
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🇨🇭 2. Switzerland (Swiss Franc CHF)
The second largest traditional funding currency, the Swiss franc is known as a mix of safe-haven currency + carry currency.
When CHF surged, many global carry trades would also get squeezed (but not as much as the yen).
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3. EUR (Euro)
In the era of QE/negative interest rates in Europe (2014–2022), the euro was a super carry currency.
Characteristics: Extremely low interest rates, vast Eurozone assets.
Global funds heavily borrow EUR for carry (especially to buy US dollar assets).
Once the ECB turns hawkish → EUR appreciates rapidly → this will trigger the 'Euro carry liquidation' (massive scale).
But interest rates are not low anymore → carry position declines.
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4. USD (US Dollar)
Sounds strange, but the dollar is often used as a funding currency.
When will this happen?
When the Fed maintains low interest rates for a long time (2009–2015).
When the world needs a safe haven.
When the dollar financing market is very loose (QE, ZIRP).
Many EM (emerging market) countries have relied on dollar borrowing; as long as USD appreciates, they all explode (Argentina, Turkey, Brazil have all experienced this).
The 'USD carry collapse' in crypto essentially refers to the liquidation of leveraged buys in crypto using USDT/USDC.
USD carry collapse = all funds long the dollar together explode.
Dollar becomes expensive → sell assets to pay back dollars → the entire market declines in sync → BTC/ETH will also be cut first.
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🇬🇧 5. GBP (British Pound)
Historically common, but today the scale is much smaller than JPY/EUR/USD.
Characteristics: When interest rates are low, it can become a funding currency, but GBP is more volatile and less stable than JPY and EUR.
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AUD (Australian Dollar) ← Often used as a high-yield currency to buy.
Many macro strategies are: > Borrow JPY → Buy AUD (high interest rate), AUD/JPY carry trade. Once AUD/JPY collapses, it’s a carry panic signal $BTC .
From my experience trading macro news in crypto, the hierarchy of 'kill switches' is simple:
1. Fed rate-hike expectations = the biggest nuke.
2. BoJ rate-hike expectations = the second biggest.
Pay attention to the wording in the news:
1. Any hint of Fed/BoJ tightening → Crypto dumps.
New Fed chair rumors, Polymarket odds spiking, hawkish comments, ADP/NFP beats—
All of these push markets into 'rate-hike mode.'
2. USD/JPY ripping higher + UST/JGB yields making new highs.
UST/JGB prices making new lows.
→ Classic signal that risk assets (including BTC) are about to bleed.
3. UK/Europe can also trigger short-term shocks.
Last time UK gilt yields hit new highs, BTC instantly nuked.
