Japan had been the world’s biggest source of cheap money for decades. With near-zero interest rates, global investors borrowed yen at almost no cost and invested it into higher-return assets like US tech stocks, Indian equities, bonds, and real estate.
Why it’s at risk now: The Bank of Japan has started raising interest rates after decades of near-zero rates, making yen borrowing more expensive.
- Yen borrowing gets pricier → profit margin shrinks
- Yen tends to strengthen on hikes → loans cost more to repay
- Investors unwind → sell foreign assets, buy back yen
- That selling can hit global risk assets all at once
August 2024 a BOJ hike + weak US data triggered a fast unwind. Nikkei had its worst day since 1987, and the shock spread to US tech within 48 hours.
The unwind has been gradual so far, but if the Bank of Japan continues raising rates while the Fed starts cutting rates, the yen carry trade could unwind much faster. That would reduce cheap global liquidity and put pressure on US tech stocks and other risk assets.
Sometimes the biggest risk to Indian and US markets doesn’t come from Wall Street it starts in Japan too. Watch BOJ rate decisions closely 31/07/2026.