The Week the Carry Trade Cracked: Friday Wrap
Friday wrap, and it’s been a week worth remembering.
USD/JPY closed at 156.20, down from 159.77 a week ago, after plumbing 154.06 intraday on Thursday. That’s the second major downside break in eight weeks, and the character of this one worries the carry community more than July’s did. July was a shock — violent, unexplained, quickly stabilized. This week’s decline has been orderly, persistent, and driven by actual flow.
The tell: the crosses
When USD/JPY falls but EUR/JPY falls harder — which is exactly what happened, with the cross dropping from 185.8 to 181.0 — the market is selling the yen-funding leg across the board. That’s deleveraging, not repositioning. Real money is reducing exposure, and those flows don’t reverse in a day.
The euro, notably, is holding at 1.1617 against the dollar. So is sterling at 1.3517. The dollar isn’t the story this week. The yen is.
Positioning check
After this week’s move, speculative yen shorts have been cut roughly in half from their summer peak. Half is not zero. There’s still a large carry community earning the differential every single day, and they’ll be tempted to rebuild again — as they did after July — if the pair stabilizes above 155.
The line in the sand is 152.90, the July low. Above it, this is a deep correction in an intact carry regime. Below it, the regime itself is in question, and the move to 148–150 would likely be fast.
Weekend levels: USD/JPY 154.00 / 158.50. EUR/JPY 180.00 / 184.00. Have a good weekend — you’ve earned it after this tape.
Disclaimer: This is market commentary, not investment advice. FX trading carries substantial risk of loss.
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