The Carry Trade Setup
For years, the yen carry trade has been one of the market's favorite leveraged bets. Borrow in yen at near-zero rates, convert to dollars, and plow the proceeds into higher-yielding assets.
Japanese rates stayed pinned near zero for decades while the Fed hiked aggressively. The trade became massively crowded: hedge funds, retail speculators, everyone piled in.
All it needed was a spark.
The BOJ Lights the Fuse
On July 31, the Bank of Japan did what almost no one expected: they hiked rates to 0.25% and signaled a path toward normalization.
The yen exploded higher — up 12% against the dollar in weeks, its sharpest rally in decades.
When your funding currency suddenly appreciates, the math flips. Forced selling kicks in, triggering more margin calls. It's a classic reflexivity loop.
Why This Wasn't a Fundamental Reset
Here's the key distinction: this wasn't 2008-style credit seizure or a genuine growth scare. Liquidity remained plentiful, corporate balance sheets were rock solid.
The unwind was sharp because positioning was extreme, but it was also self-contained. Once the forced selling exhausted itself, buyers stepped in.
The Opportunity in the Chaos
These kinds of air pockets don't happen often, but when they do, they separate noise from signal.
The AI infrastructure buildout hasn't slowed. A 20% drop on pure leverage unwind doesn't change the multi-year demand trajectory.
Volatility is the price of admission in a bull market this powerful. We've been aggressively buying the dip.