Not all yen spikes are created equal
The market has spent a lot of time worrying that a stronger yen could be the match that lights the carry-trade bonfire. JPMorgan’s Arindam Sandilya basically says: not so fast. Investors have gotten a little more sophisticated, and a lot of them are now borrowing in more than just yen, which makes the whole thing harder to unwind all at once.
The real hair-on-fire scenario
According to Sandilya, the bigger threat isn’t a garden-variety yen rally. It’s a deflationary shock — the kind of thing that makes risk assets get very uncomfortable, very quickly. He points to a possible premature end to the AI cycle as one potential trigger. In other words, if the market’s favorite growth story goes from "can’t stop, won’t stop" to "uh oh," the carry trade could feel it a lot more than it would from yen strength alone.
Why investors should care
The carry trade is basically leverage with a passport stamp: borrow cheap, invest somewhere juicier, hope the funding stays cheap and the trade stays calm. If that funding base is diversified, the unwind gets messier — but not necessarily more fragile from one yen move. The real danger is a macro shock that hits sentiment, funding costs, and risk appetite all at once.
Big picture: yen strength may still make traders sweat, but JPMorgan’s view is that the market’s more likely to crack from a broader deflationary scare than from the yen alone.