Investing.com -- Selling Japanese government bonds to buy risker assets like stocks or emerging market debt has been popular trade for years, but the yen 'carry trade' could be nearing end, potentially sparking a chain events that could leave big dent in stocks.
Like with most short selling positions, the risk is always an unexpected rise on the short position -- that risk, once benign is becoming to creep up and that could eventually be bad news for risky assets such as stocks. The yen has strengthened more than 5% against the dollar in a month, stoking fears the yen carry trade may be nearing an end. This has mostly been driven by BOJ intervention to prop up the yen, but there are other factors that could likely push the yen higher including expectations for sooner Fed rate cuts.
The political winds of change in U.S., meanwhile, could also play a role in the unwinding of the carry trade.