--- title: "This Wall Street investment bank warns: Yen arbitrage trading is a \"time bomb\"" type: "News" locale: "en" url: "https://longbridge.com/en/news/275525998.md" description: "Yen arbitrage trading involves borrowing low-interest yen to purchase high-yield assets to earn interest rate differentials, but it can quickly unravel during sharp declines in high-risk assets or when the yen appreciates. BCA Research warns that the scale of arbitrage trading has surged in recent years, potentially repeating the collapse scenarios of 2008, 2015, and 2020. The yen has appreciated over 1% this year, and the market is focused on the possibility of the Bank of Japan raising interest rates, which could trigger a chain reaction if the yen appreciates" datetime: "2026-02-11T00:06:39.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/275525998.md) - [en](https://longbridge.com/en/news/275525998.md) - [zh-HK](https://longbridge.com/zh-HK/news/275525998.md) --- > Supported Languages: [简体中文](https://longbridge.com/zh-CN/news/275525998.md) | [繁體中文](https://longbridge.com/zh-HK/news/275525998.md) # This Wall Street investment bank warns: Yen arbitrage trading is a "time bomb" BCA Research warns that yen carry trades have become a "ticking time bomb," with this strategy, favored by hedge funds, facing a significant risk of large-scale unwinding. On February 11, Bloomberg reported that the BCA Research analyst team believes that yen carry trades could repeat the collapse scenarios of 2008, 2015, and 2020. **At that time, a deterioration in global risk sentiment triggered a sudden deleveraging, with investors rushing to buy yen for safety.** In a recent report by investment bank analysts including Arthur Budaghyan, it was pointed out that **the next unwinding will be triggered by a decline in "carry assets" and/or a rebound in the yen, with both factors reinforcing each other, leading to a large-scale reversal of yen carry trades.** The yen has risen over 1% against the dollar this year and is currently trading around 154.4, recovering from nearly 160 levels last month. The market is closely watching the potential interest rate hike actions by the Bank of Japan later this year. ## Mechanism and Risks of Carry Trades The basic strategy of yen carry trades is to borrow low-yielding yen to purchase high-yield assets, thereby earning interest rate differential profits. However, this strategy can quickly unravel in two scenarios: a sharp decline in high-risk assets or a significant appreciation of the yen. The BCA Research analyst team stated that while it is difficult to accurately estimate the scale of yen carry trades, multiple indicators show that this trading has "surged in recent years," involving a "considerable amount." The firm noted that yen carry trades have previously collapsed during the 2008 financial crisis, as well as in 2015 and 2020. The common feature during these periods was a sharp deterioration in global risk sentiment, leading to concentrated deleveraging by investors. BCA Research emphasized that **it is impossible to predict whether the next unwinding will be triggered by a decline in assets or a rebound in the yen first, but "once the yen begins to appreciate, due to the surge in yen carry trades, the extent of appreciation will be quite considerable."** The yen is rebounding from historically weak levels and has moved away from the area that could trigger intervention by the Bank of Japan. Market expectations for a possible interest rate hike by the Bank of Japan this year are becoming an important factor supporting the yen ### Related Stocks - [Invesco CurrencyShares® Japanese Yen (FXY.US)](https://longbridge.com/en/quote/FXY.US.md) - [ProShares UltraShort Yen (YCS.US)](https://longbridge.com/en/quote/YCS.US.md) - [ProShares Ultra Yen (YCL.US)](https://longbridge.com/en/quote/YCL.US.md) ## Related News & Research - [Iran conflict raises odds BOJ will forgo rate hike in March, sources say](https://longbridge.com/en/news/277570707.md) - [Japan watching markets with 'extremely strong' sense of urgency, finance minister says](https://longbridge.com/en/news/277536174.md) - [South Korean won hits weakest level since March 2009, last down 3.3% at 1,488.7 per dollar](https://longbridge.com/en/news/277641667.md) - [Tranche Update on Mitsubishi UFJ Financial Group, Inc.'s Equity Buyback Plan announced on November 14, 2025.](https://longbridge.com/en/news/277518873.md) - [Money markets now see 25% chance of ECB rate hike by year-end](https://longbridge.com/en/news/277588540.md)