Yen Carry Trade Collapses as Japan's Debt Bill Takes Center Stage

The long-standing rule that drove the Japanese yen's value for decades has finally broken down, according to Apollo Global Management.

The traditional 'yen carry trade' relied on a gap between US and Japanese interest rates. Investors borrowed yen at near-zero rates and bought dollar assets with higher yields, pocketing the difference.

Apollo Chief Economist Torsten Slok says this trade collapsed after April 2025, when sweeping US tariffs were implemented. The link between the dollar-yen rate and the yield gap had held for decades, but the volatility triggered by the tariffs made it no longer viable.

The math is unforgiving, one sharp yen rally can erase a year of earnings from the trade. As traders cut their exposure, even with a wide interest rate gap, the yen continued to fall.