The Yen Carry-Trade Unwind — August 5, 2024
When a funding trade broke: Nikkei -12%, VIX above 60, S&P -3%
A Bank of Japan rate rise plus a weak U.S. jobs report forced a violent unwind of yen-funded leverage on Monday, August 5, 2024. The Nikkei had its worst day since 1987, the VIX briefly printed above 60 pre-market — one of its highest readings ever — and the S&P 500 fell 3%. Within two weeks the index had recovered essentially all of it.
What history says
Editorial commentary written by ALAN analysts. Figures cited below are analyst-authored context — they are not derived from the chart above and may reflect different windows or sources.
When the selling comes from leveraged carry positions being forced to close — rather than from a change in economic fundamentals — the drawdown tends to be violent, narrow, and brief. August 2024 was the textbook case.
Credit spreads barely moved in August 2024. Volatility spikes unaccompanied by funding stress have historically been among the most buyable dislocations.
Ask WHY the market is falling. Forced deleveraging, systematic strategy selling, and margin calls create mechanical overshoots that fundamentals-driven selloffs do not.
Keep a written rebalancing trigger for one-day dislocations — a rule like 'add to equities at a 3% single-day decline with credit spreads unchanged' converts panic into process. Investors who acted on August 5 were made whole within two weeks; those who sold locked in the low.