Spirited Away

The author argues that a disorderly unwind of the yen carry trade could trigger a global financial crisis and that Japan's central bank would have to sell large amounts of government bonds, pushing down foreign assets held by Japan Inc. The article describes Japan Inc., which includes the Bank of Japan, corporations, households, pension funds and insurers, as having borrowed yen cheaply to buy foreign assets, with the Bank of Japan holding almost half the JGB market and bank reserves at 102% of GDP. It cites Government Pension Investment Fund holdings of $1.14 trillion and says the dollar-yen pair fell from 160 to 142 in four trading days. Figures are the author's own, drawn from a November 2023 Deutsche Bank report.