Is the yen carry trade unwind already over?

After a turbulent start to the week, financial markets have stabilised over recent days, with asset prices and risky currencies recovering some of their sharp falls in the wake of the run of poor US economic data that prompted a massive sell-off across markets. Whether that tentative calm holds up next week will in large part come down to the upcoming US data releases over the next few weeks – and the extent to which the FOMC pushes back on the recent shift in US interest rate expectations. Our base case remains that the recent run of poor data is more likely down to temporary disruption than the start of a serious slowdown, which suggests to us that the recent rebound in risky assets and currencies will continue. As for the much-discussed yen carry trade unwind, our sense is that most of the immediate disruption on that front is now in the past, but we expect the yen to hold on to its recent gains and, probably, make further headway over the coming months and into 2025.