Borrow nearly-free Japanese yen, invest it where returns are higher: the carry trade

With Japanese interest rates near zero for decades, traders could borrow yen cheaply, convert it into higher-yielding currencies or assets abroad, and pocket the difference. The trade unwinds violently when the yen strengthens: a Bank of Japan rate rise in August 2024 sent the yen up roughly 6% against the dollar in days, forcing a rush of unwinding that briefly rattled stock markets worldwide.