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Yen carry trade unwind 2024: Japan's worst day since 1987

On 5 August 2024, Japan's Nikkei index fell 12.4% in one day, its worst drop since 1987. The next day it jumped 10%. Behind both moves was one popular trade going into reverse.

Story · 7-minute read · Updated 2026-10-21

The trade everyone was in

For years, Japan kept interest rates near zero, and for a long stretch below zero. Borrowing in yen was almost free.

Rates in the US and elsewhere were much higher. That gap created a simple idea:

1. Borrow yen cheaply.
2. Swap it into dollars or another currency.
3. Put the money where it earns more, such as US bonds, stocks or higher-rate currencies.

This is called a carry trade. You earn the difference between the two rates. See interest rate differential.

Why it worked for so long

The trade had a second engine. As money flowed out of yen, the yen kept weakening.

In early July 2024, a dollar bought about 161.9 yen. That was the weakest the yen had been in nearly 40 years.

A weaker yen meant the loan got cheaper to repay. So the trade earned the rate gap and gained on the currency. It looked like a one-way street.

When a trade looks like that, a lot of people pile in. Nobody knows exactly how big it was. Estimates varied widely.

What happened

The yen turns

In March 2024, the Bank of Japan raised rates for the first time in 17 years, ending negative rates.

Then, on 31 July 2024, it raised its short-term rate again, to about 0.25%. The same day, Japan's finance ministry confirmed it had stepped into currency markets earlier to support the yen.

A small hike. But it sent a message: cheap yen might not last.

The US surprise

On 2 August 2024, the US jobs report came in weaker than expected. The unemployment rate rose to 4.3%.

Traders began betting the US Federal Reserve would cut rates sooner and further.

Now the gap that powered the trade was closing from both sides. Japan's rates were going up. US rates were expected to come down.

The rush for the exit

As the yen strengthened, people holding the carry trade started losing on the currency. To stop the losses, they sold what they'd bought and paid back yen.

Buying yen to repay loans made the yen stronger. A stronger yen forced more people out. The loop fed itself.

The moment everyone remembers

On Monday 5 August 2024, the Nikkei 225 fell 4,451 points, or about 12.4%, to about 31,458.

• It was the Nikkei's biggest point drop ever, and its worst percentage fall since Black Monday in 1987.
• In the US, the S&P 500 fell about 3%.
• The VIX, Wall Street's "fear gauge", spiked to about 65.7 during the day, one of its biggest one-day jumps ever. It closed near 38.6.

Then, on 6 August, the Nikkei rose about 10.2%, one of its best days ever.

On 7 August, a Bank of Japan deputy governor said the bank wouldn't raise rates while markets were unstable. Calm slowly returned. Within weeks, most major markets had won back much of the drop.

What it teaches

1. A trade that "always works" is often crowded

The carry trade worked for so long that it felt safe. That's exactly why so many people held it, and why the exit was so violent when it came. Our USD/JPY page explains what moves the yen.

2. Small changes can trigger big moves

A 0.25% rate and one jobs report don't sound like much. But when a lot of money is leaning one way, a small push can tip it. Watch the scheduled events on an economic calendar.

3. Big down days and big up days come together

The worst day and one of the best days happened back to back. Both were driven by fear and forced moves, not calm thinking. On days like that, spreads widen and prices jump. Size for that, using the position size calculator.

4. Leverage decides who has to sell

The people forced to sell were the ones who had borrowed. They didn't get to choose their timing. Read leverage and margin explained.

What it doesn't mean

• It doesn't mean the yen carry trade is gone. By mid-2026, the yen had again fallen to around its July 2024 low against the dollar.
• It doesn't mean every crash bounces back the next day. August 2024 did. Many other crashes, like 1929, didn't.
• It doesn't mean one cause explains it all. Worries about a US slowdown and high prices for tech stocks also played a part. Economists still debate the mix.
• It doesn't mean you can earn a rate gap for free. The extra yield is payment for the risk of days like 5 August.

Timeline

Questions