The latest market gyration has injected a fresh variable into discussions surrounding yen carry trades. This past Monday, the yen surged against the US dollar to its highest point in two months, sparking speculation that Japanese authorities might have directly intervened in the foreign exchange market to support the currency. In the first hour of Tokyo trading, the yen appreciated by approximately 1.1% against the dollar, breaching the 154-yen level. Prior to this move, 'rate checks' conducted by US authorities with market participants were seen as a potential precursor to intervention. Japan's last direct intervention in the forex market occurred in 2024, when it purchased nearly $100 billion worth of yen across four separate occasions to bolster the exchange rate, at a time when the yen had weakened to around 160 per dollar.

This market anomaly has also refocused attention on a term frequently heard in global macro narratives—'yen carry trade unwinding'—bringing it back into the spotlight.

According to Maitong MSX Research Institute, the prevailing market narrative suggests a structure where the Bank of Japan is gradually exiting its ultra-loose monetary policy, leading to rising long-term rates, while the Federal Reserve enters a phase of anticipated rate cuts, causing the US-Japan interest rate differential to narrow. Theoretically, the interest rate foundation supporting global carry trades is being undermined. Within this narrative framework, a logical deduction is that carry trade funds, which use the yen as a funding currency to acquire US dollar-denominated assets, would be forced to unwind their positions or repatriate capital. Such a withdrawal of Japanese capital could potentially impact global risk assets, particularly US stocks.

The problem, however, is that the market is not conforming to this story. Despite Monday's sharp yen appreciation, the currency has not experienced sustained, one-sided significant strengthening over the past week or even longer. While US stocks have shown volatility, there has been no systemic sell-off, and global risk assets have not displayed the classic characteristics of 'liquidity receding.' Consequently, a seemingly sharp yet critical question emerges: if the carry trade is indeed 'unwinding,' why are there almost no traces of it in price action, fund flows, or market structure?

To understand this, one must first dismantle a common misconception: the 'deterioration of the logic' behind a carry trade is not equivalent to 'carry trade funds having already retreated on a large scale.' Strictly speaking, only the first phase of change is currently underway: the interest rate differential is no longer widening consistently, exchange rate volatility has increased, and policy uncertainty has risen. These three factors indeed weaken the risk-reward appeal of the carry trade, but they do not yet constitute conditions forcing mandatory unwinding. For large institutions, the criteria for exiting a carry trade are not simply whether 'conditions have worsened,' but rather whether the trade has turned unprofitable, whether risks have increased non-linearly, or whether unhedgeable tail risks exist. At least at this stage, none of these three conditions have been fully triggered, resulting in carry trades entering a grey area—'no longer comfortable, but still sustainable.'

Why do carry trade funds remain in the market? Maitong MSX Research Institute, after in-depth analysis, posits that the core reasons why carry trade funds 'should theoretically flow back' but have not done so on a large scale stem from three points, with hard data providing a more intuitive revelation of the underlying truth—the truth lies not in 'invisibility,' but in the math still being favorable.

First, the interest rate differential persists, albeit with diminished marginal appeal, and the 'safety cushion' remains substantial. Whether a carry trade collapses depends crucially on whether borrowing yen to buy US dollar assets remains profitable. Data shows the interest rate buffer is sufficient to absorb current exchange rate fluctuations. As of January 22, 2026, the effective US federal funds rate stood at 3.64%, while the Bank of Japan's policy rate was maintained at 0.75% (raised to this level in December 2025, with no change at the January 2026 meeting), resulting in a nominal interest rate differential of 2.89% (289 basis points). This implies that carry trades would only incur losses if the yen appreciates by more than 2.9% annually. Although the yen spiked 1.1% on Monday, as long as this appreciation does not form a long-term trend, it represents merely a 'profit retracement' rather than a 'capital loss' for traders targeting nearly 3% annualized returns, which is a core reason for the absence of large-scale unwinding. Furthermore, the real interest rate differential further reinforces the incentive for the carry trade: Japanese CPI remains in the 2.5%-3.0% range, resulting in a negative real interest rate of -1.75% to -2.25% after inflation, effectively meaning borrowers are being paid in purchasing power terms; whereas the US real interest rate is approximately 1% (3.64% rate minus 2.71% inflation). This nearly 3% real rate differential provides more substantial support for carry trades than verbal interventions.

Second, modern carry trades have long become 'invisible,' a structural change most easily overlooked yet critically important. In many people's imaginations, the yen carry trade remains a simple chain of 'borrow yen → exchange for dollars → buy US stocks → wait for interest differential and asset appreciation.' In reality, however, a significant portion of these transactions are executed through FX swaps and cross-currency basis swaps, with exchange rate risk systematically hedged using forwards and options. Carry trade positions are embedded within multi-asset portfolios rather than existing in isolation. This means carry trade funds do not necessarily require explicit actions like 'selling US stocks and buying back yen' to reduce risk exposure. They can adjust by not rolling over positions upon maturity, reducing leverage ratios, extending holding periods, or allowing positions to expire naturally. Consequently, capital repatriation manifests as more隐蔽 characteristics, such as a reduction in new inflows while existing funds remain temporarily static.

Third, genuine 'forced unwinding' requires extreme conditions, and current speculative positions have not 'surrendered.' Historically, stampedes in yen carry trades have been accompanied by a triple shock: rapid and substantial yen appreciation, synchronized declines in global risk assets, and a sudden tightening of funding liquidity. Current market conditions do not possess this 'resonance.' CFTC (Commodity Futures Trading Commission) data shows that as of January 23, 2026, non-commercial (speculative) net yen positions stood at -44,800 contracts. Although this is reduced from the peak in 2024 (over -100,000 contracts), it remains in net short territory. This indicates that speculative funds are still betting against the yen and have not turned into net buyers. As long as this data does not turn positive, the notion of a 'great retreat' is a false premise. Additionally, survivor bias following the April 2025 'crash' has reduced the current market's sensitivity to volatility. The VIX index spiked to 60 in April 2025, an event during the tariff war that wiped out all fragile funds with leverage exceeding 5x. In contrast, the VIX index stood at just 16.08 in January 2026, representing only a quarter of the panic level seen previously. Today's market participants are survivors who withstood a VIX of 60; a mere 1.1% exchange rate fluctuation might not even necessitate a margin adjustment for them.

However, Maitong MSX Research Institute also cautions readers that if one shifts focus from 'whether a blow-up occurs' to changes in market structure, the influence of the carry trade is indeed already visible, albeit in a more隐蔽 manner.

First, US stocks have become more sensitive to interest rate and policy signals. Recently, fluctuations in US Treasury yields of the same magnitude have had a noticeably amplified impact on growth and technology stocks. This often signifies a decline in the risk tolerance of marginal funds. Once carry trade funds cease to provide 'stable passive inflows,' the market's pricing of macro variables becomes more fragile.

Second, the rise in US stocks is increasingly reliant on 'endogenous funds.' The supportive role of corporate buybacks on the indices has strengthened, while the marginal contribution from foreign funds has declined. Sector rotation has accelerated, but the persistence of trends has weakened. This is not a typical 'capital withdrawal' but rather resembles a scenario where external liquidity is no longer expanding, forcing the market to sustain itself.

Finally, volatility has been suppressed but remains highly sensitive to shocks. During the 'defensive' phase of carry trade funds, markets often exhibit a state of apparent calm yet underlying fragility—volatility is low during normal times, but reactions are rapidly amplified upon policy or data shocks. This is a typical characteristic of a high-leverage system that is de-risking but has not yet fully deleveraged.

Maitong MSX Research Institute believes that when the carry trade truly collapses, the market won't discuss it repeatedly beforehand. The moment one simultaneously observes a sharp yen surge, synchronized declines in US stocks, rapidly widening credit spreads, and失控ly rising volatility, the outcome phase has already arrived. Currently, the market remains in a more微妙 position—the logic of the carry trade has been shaken, but the system is still delaying the inevitable.

This is the most counterintuitive aspect of the current global market: the real risk does not stem from changes that have already occurred, but from those 'changes that have been delayed yet are accumulating.' If the yen carry trade was once the隐形engine of global risk assets, today it更像a machine that is slowing down but has not yet stalled, with US stocks navigating precisely over this减速带.

The data does not lie. As long as the US-Japan interest rate differential remains at 289 basis points and speculative positions hold 44,000 net short yen contracts, US stocks will not crash due to yen fluctuations. The current market stability is essentially because the mathematical threshold mandating withdrawal has not been reached, not due to deliberate support from macro narratives.