Part 3/10:
To understand the stakes, one must grasp the concept of the yen carry trade. This strategy involves borrowing Japanese yen at near-zero or negative interest rates, converting that borrowed money into dollars, and investing in higher-yielding assets such as US tech stocks, US treasuries, and Bitcoin.
For decades, Japan's ultra-low interest rates have made borrowing cheap, fueling an explosion of this carry trade. Estimates suggest that up to $4 trillion or more has been mobilized through this mechanism, with some conservative figures placing direct exposure around $1-2 trillion. When Japanese interest rates stay low, investors borrow yen and buy assets internationally, fueling liquidity in global markets.