Analysis of Japanese Carry Trade "Death" Claims Amid Rising JGB Yields and Market Movements

This analysis is based on a December 1, 2025 Reddit thread [0] discussing claims that the Japanese Carry Trade (JCT)—a strategy of borrowing yen at low interest rates to invest in higher-yield assets globally—is dead due to rising Japanese government bond (JGB) yields.

The core catalyst for the discussion was Japan’s 2-year JGB yield reaching 1.000% on December 1, 2025, its highest level since 2008 [4]. This spike increases the cost of borrowing yen, reducing the JCT’s profitability. The USD/JPY exchange rate fell 0.77% to 154.9350 on the same day [5], indicating yen strength—a trend consistent with investors unwinding JCT positions by selling higher-yield assets to repay yen-denominated loans.

Crypto markets experienced significant selling pressure linked to the JCT unwind, with Bitcoin dropping 5.28% to $85,833.27, Ethereum falling 5.59% to $2,821.28, and over $600 million in liquidations [1]. In contrast, traditional US equities showed minimal movement: the S&P 500 rose 0.14%, NASDAQ gained 0.36%, and the Dow Jones fell just 0.19% [3], suggesting crypto is more vulnerable to JCT-related liquidity shifts than established equities.

Reddit thread participants expressed conflicting views: bearish warnings of global collapse, skepticism that the JCT died in 2024, neutral expectations of central bank bailouts, and a contrarian claim that the JCT remains alive due to USD/JPY movements. The contrarian’s mention of USD/JPY rising 7% in November likely references earlier yen weakness from Prime Minister Takaichi’s spending plans [7], but the December 1 reversal indicates a short-term shift.

1. JCT Status
   : The JCT is not “dead” but significantly less profitable due to the 2-year JGB yield spike. A sustained rise in yields would be required to fully eliminate its appeal, as the strategy has historically adapted to changing rate environments [0].
2. Asset Class Impact
   : Crypto markets are more sensitive to JCT unwind than traditional equities, likely due to their higher volatility and association with speculative capital [1].
3. USD/JPY Dynamics
   : The December 1 yen strength contradicts the contrarian’s short-term uptrend claim, highlighting the volatility of currency pairs amid shifting rate expectations [5, 7].
4. Market Discourse
   : The Reddit thread exemplifies polarized, often uninformed reactions to complex financial news, underscoring the need for data-driven analysis over emotional commentary [0].

• Risks
  : A sustained JCT unwind could reduce global liquidity, increasing volatility in risk assets over the long term [1]. Short-term crypto market instability remains a concern amid ongoing rate and currency fluctuations.
• Opportunities
  : If the JCT unwind accelerates, continued yen strength could benefit yen-denominated assets. Investors should monitor JGB yields and USD/JPY movements for further signals of carry trade dynamics [0].

• Japan’s 2-year JGB yield hit 1.000% (17-year high) on December 1, 2025 [4].
• Crypto selloff: Bitcoin (-5.28%), Ethereum (-5.59%), $600 million in liquidations linked to JCT unwind [1].
• US equities: S&P 500 (+0.14%), NASDAQ (+0.36%), Dow Jones (-0.19%) on December 1, 2025 [3].
• USD/JPY exchange rate: 154.9350, down 0.77% on December 1, 2025 [5].
• Reddit thread showed conflicting views on the JCT’s status and future market impacts [0].