Death of the Yen carry tradeMarkets seem convinced that the...

Death of the Yen carry trade

Markets seem convinced that the recent stock sell-off in the US is due to growth concerns -- after a weak labor report. We think they are mistaken. The real cause of the sell-off is the unwinding Yen carry trade.
Hedge funds have been making a killing on the Yen carry trade, but they just got killed. Borrowing cheaply in Yen and investing in stocks and Treasuries in the US, the trade benefited from ultra-low interest rates in Japan, far higher short-term rates in the US, massive appreciation in the top ten stocks on the S&P 500, and a rapidly weakening Yen against the Dollar.
But the Bank of Japan just pulled the rug from under them, raising interest rates and indicating that they plan to normalize monetary policy over time. The move caused a sharp rise in the Japanese Yen, with the US Dollar plunging below 150.