The Great Unwind
Have you wondered why the stock market has been so choppy since October and why crypto and gold keep flash crashing? The western media would have you believe this is due to AI bubble, war in Greenland, and Trump's tweets. We have a better story to tell.
Wall Street has lost control of the Japanese Yen carry trade unwind.
There's been a fair bit of quiet chaos in financial markets recently. Cryptocurrencies have lost 40% of their value. We saw silver drop 40% which hasn't happened since 1980. Stocks like Microsoft are getting picked off one-by-one with 15% drops when positive earnings reports come out. Meanwhile the broader market chops sideways, so people think things are fine. Trump and Europe were on the brink of war for control of a desolate arctic territory. Truth Social has overtaken FOMC as the most important source of financial news. These things may all appear to the untrained eye as a series of idiosyncratic, disconnected shocks. The prevailing media narrative is that the market is reacting negatively to AI CapEx spending and a hawkish new Fed chair. But our systematic analysis of cross-asset flows, derivatives positioning, central bank policy minutes, and institutional balance sheets suggests a singular, unified causality that binds these disparate anomalies, which is the covert unwinding of the Japanese Yen carry trade.
For nearly thirty years, the Bank of Japan’s (BOJ) Zero Interest Rate Policy (ZIRP) and subsequent Negative Interest Rate Policy (NIRP) effectively transformed the Yen into the world’s funding currency. We would call it the greatest free money printer ever made. By anchoring borrowing costs at or near zero, the BOJ enabled Wall Street to borrow Yen cheaply and invest it with leverage into higher yielding instruments globally, such as U.S. treasuries, equities, and cryptography. For example, you borrow Yen from Japan at 0% interest, you exchange it for USD, and then you buy treasury bonds that pay 4%. It's that simple. This funded government benefits and provided continuous reliable liquidity for financial markets that made stocks keep going up while suppressing volatility.
Trillions of dollars of free loans from the Bank of Japan were used by a generation of investors to buy a double digit percentage of the U.S. economy. Now those loans are being recalled. Wall Street traders who levered up on the free Japanese money now have to sell trillions of assets and convert the proceeds back to Yen in order to not be liquidated. These aren't happy times for them. They get liquidated when Japan raises interest rates; they get liquidated when the Federal Reserve lowers interest rates; they get liquidated when the Japanese Yen increases in value; they get liquidated when tech stocks aren't going up enough, and all four of these things have been happening at once.
Wall Street may be greedy, but they're very intelligent too. They made many smart choices about where to put the "free" money. Now let's say you're someone who's also smart, but was wise enough to not use Sauron's ring. Chances are you invested in the same things as Wall Street. So by now you've probably seen your whole portfolio move against you; you're wondering why your hedges don't work; and you feel like you're being punished for making all the right choices. It's because other smart people, who got greedy, are being forced to close their positions, and you're the whipping boy for their avarice.
The Japanese Yen is sort of like GameStop ($GME). It's the most shorted currency on Earth. When you borrow yen to buy American assets, you're effectively shorting the yen. Currency can be rehypothecated so that yen-denominated debt ends up exceeding the actual yen supply, the same way GME's short interest exceeded 100% of its float. When shorts start covering it compounds tragedy, because they all have to buy yen, which makes its value increase, forcing more shorts to cover, and Japan is a small island.
This December 2025 rate hike to 0.75%, followed by the explicitly hawkish signalling from Prime Minister Sanae Takaichi’s administration, has fundamentally altered the risk-reward calculus of these leveraged positions. The market disruptions observed in January 2026 bear the distinct mathematical signature of a forced liquidation event rather than a fundamental repricing of growth prospects. When correlations between historically uncorrelated assets (e.g. Gold, Bitcoin, Microsoft, and Silver) approach 1.0 during a sell-off, it serves as a distinct indicator that traders are not selling what they want to sell, but rather what they must sell in order to meet margin calls in a funding currency that is rapidly appreciating against their liabilities.
We shall investigate the mechanics of this unwind in exhaustive detail. We analyze the "Greenland Distraction" not as a root cause but as a volatility trigger that shattered the complacent calm of the "Davos Consensus." We examine the anomalous liquidation in precious metals following the nomination of Kevin Warsh to the Federal Reserve Chairmanship, and we dissect the flow of funds from major Japanese institutional whales like Norinchukin Bank, whose retreat from foreign bond markets has left a liquidity vacuum in the U.S. Treasury complex. The evidence points to a systemic repricing of the global cost of capital, originating in Tokyo and transmitting violently through the plumbing of Wall Street, leaving no asset class untouched.
... continue reading