This week, the Bank of Japan wrecked havoc on the foreign exchange market. What’s the Yen Carry Trade, how does an intervention work, and what does it all mean?

Years ago, a massive money printer emerged out of Japan. It was called “The Yen Carry Trade”, and it provided trillions of dollars of capital that would flow into US Treasuries, stocks, and other financial assets.

To deal with the enormous economic pain that Japan was suffering after the 1990 bubble burst, the Bank of Japan took its overnight interest rate to 0.0%, and from 2016-2024, even negative.

Japanese overnight interest rate, 1990-present

Remember, the central bank’s overnight interest rate is the price of money. In…

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