Yen Surge Revives Carry Trade Danger
The Japanese yen has surged approximately 4% against the dollar since September, pushing the exchange rate to around ¥153. This move is causing concern among investors who had borrowed cheaply in yen and invested in higher-yielding currencies and risk assets elsewhere.
A stronger yen makes these trades more expensive to unwind, according to Saxo chief investment strategist Charu Chanana. Some of the market's biggest winners could become sources of cash if leveraged investors suddenly need it.
The companies that may be most affected by a potential deleveraging event are Nvidia, Broadcom, AMD, TSMC, and Micron, as well as Palantir and Snowflake, due to their strong performance and crowded ownership. The yen's strength is also putting pressure on the Treasury market, with Japanese investors selling overseas bonds potentially pushing long-term U.S. yields higher.
LPL Financial chief technical strategist Adam Turnquist sees ¥152 per dollar as a crucial threshold, below which more traders may need to cover short-yen positions and potentially reignite the yen carry trade unwind risk, including spillovers into U.S. Treasurys.