Carry-Trade

In the third week of January 2026, Japan’s 40-year government bond yield surged past 4% for the first time since the bond’s inception, eventually reaching 4.24%. The 10-year JGB yield hit 2.38%, its highest level in 27 years. It was the most violent sell-off in Japanese government debt in decades, and it sent shockwaves through bond markets in New York and London. If you are an American or European investor, you might have dismissed this as a local Japanese story. That would be a mistake. What happens in the JGB market affects your Treasury yields, your mortgage rate, and the stability of the global fixed-income market in ways that are not immediately obvious but are profoundly important. ...

The Japanese yen has weakened dramatically against the dollar and the euro over the past four years, falling from roughly 110 to the dollar in early 2021 to above 155 by late 2025. For Japanese investors, this has been painful. For American and European investors, it may be something quite different: an entry point. Currency movements are notoriously difficult to predict, and anyone who claims certainty about where the yen is headed should be treated with scepticism. But the structural forces that drove the yen to multi-decade lows are beginning to shift, and investors who understand those forces can make a more informed judgement about whether yen-denominated assets belong in their portfolio. ...