The top five Big Tech (Nvidia, Microsoft, Apple, Alphabet, and Amazon) firms now account for nearly 30% of all U.S. equity value.
If you're like the 53% of physicians investing in mutual funds or the 49% holding individual stocks, there's a pretty good chance your portfolio has serious exposure to these tech giants.
And right now, these same companies are sitting at the epicenter of one of the most fascinating financial dynamics playing out in global markets: the yen carry trade.
Source: Medscape
You might be wondering what a Japanese currency strategy has to do with your 401(k).
Turns out, quite a lot.
Let's talk about why something happening in Tokyo could make your tech stocks take a nosedive.
In case you missed it: When Your Portfolio Makes More Money Than You
What Is The Yen Carry Trade?
Imagine you could borrow money from your local bank at basically zero percent interest.
Not 3%, not 1%, but essentially free money.
Now, imagine taking that borrowed cash and investing it in something paying 4–5% returns. You pocket the difference, which in finance-speak is called the “carry.” Pretty sweet deal, right?
That's precisely what's been happening on a massive scale for years. Big institutional investors and hedge funds have been borrowing Japanese yen at rock-bottom rates (we're talking 0.1% for a long time) and converting those yen into dollars to buy higher-yielding assets.
What kind of assets? Well, think US Treasury bonds yielding around 4%, or better yet, those same tech stocks lighting up your portfolio.
Annualized returns on dollar-yen carry trades typically hover between 5% and 6%, which is solid money when you're operating at scale. And when you add leverage into the mix (borrowing even more to amplify your bets), those modest spreads turn into serious profits. It's like compound interest on steroids.
For years, this trade was a no-brainer. Japan kept interest rates pinned near zero while the Federal Reserve jacked up US rates to fight inflation.
The interest rate gap got wider and wider, making the trade more attractive. Even better, the yen kept weakening against the dollar throughout 2023 and early 2024, which meant investors weren't just earning that interest rate spread but were also making money on the currency move itself.
Why August 2024 Flipped the Yen Carry Trade
Remember that wild week in early August when the markets went haywire?
The Nikkei index fell 12.4% on August 4, 2024, causing a ripple effect in global markets, and the S&P 500 dropped 3%, its worst one-day loss in nearly two years. If you checked your portfolio that day and felt your stomach drop, you weren't alone.
Here's what happened: on July 31st 2024, the Bank of Japan did something almost nobody expected. They raised interest rates from around 0.1% to 0.25%. Now, a quarter of a percent sounds like nothing, right? But in the carry trade world, that's huge. It was the first real signal that Japan's era of free money might be ending.
Then, just two days later, on August 2nd, the US released a disappointing jobs report showing only 114,000 jobs created versus the expected 175,000. Suddenly, everyone started betting the Federal Reserve would need to cut rates sooner to prevent a recession.
You had Japan raising rates while the US looked likely to cut them. That interest rate gap that made the carry trade profitable? It started closing fast.
Between July 29 and August 5, the Japanese yen appreciated by approximately 6.15%, rising from 0.0065 to 0.0069 USD per JPY.
That might look like small potatoes, but when you're dealing with billions of dollars and heavy leverage, a 6% currency move in a week is catastrophic.
Carry traders panicked. They needed to unwind their positions, which meant selling off those US assets they'd bought (hello, tech stocks) and buying back yen to repay their loans. But when everyone tries to exit the same trade at once, it creates a feedback loop…and things can get ugly.
Selling US stocks drives prices down. Buying yen drives its value up. Higher yen values make the trade even worse for anyone still in it, forcing more selling. Rinse and repeat.
When the BOJ hiked rates in early August last year, Japanese investors and hedge funds that were short Japanese yen sold their most appreciated asset: US momentum stocks.
Translation: they dumped the tech darlings that had been crushing it all year.
Your Portfolio Exposure
Let's talk about what this means for you specifically.
If your overall portfolio has an asset allocation of 80% stocks and the stock market drops 30%, your portfolio might decline 24%. That's what we saw playing out in real-time during the August selloff, though thankfully, markets recovered relatively quickly.
But let's not forget that the information technology and communication services sectors were responsible for 56.5% of the S&P 500's total return in 2024. Excluding tech companies, the broader index would have returned just 11% instead of 25% that year. Your portfolio's performance is likely riding on the backs of these same companies that get hammered hardest when carry trades unwind.
More than 14% of physicians invest over 80% of their net worth in the stock market, and if you're following the common advice to hold broad market index funds, you've got heavy exposure to tech, whether you realize it or not. The Vanguard Total Stock Market Fund that everyone loves? Apple, Microsoft, and Nvidia are among its largest holdings.
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The Yen Carry Trade in 2025
Fast forward to today (December, 2025), and the situation looks both better and worse. Better because investors now hold record long positions in the yen, which is up about 11% versus the dollar since last July's lows.
That suggests the positioning that caused August's chaos has largely reversed. Most of the panic selling is probably behind us.
However, markets are now pricing in an 80% chance that the Bank of Japan will raise rates at its December policy meeting. Bank of Japan Governor Kazuo Ueda delivered more hawkish views than markets expected, saying the central bank would consider raising interest rates at its upcoming meeting.
Consequently, the same dynamics that caused August 2024's chaos could flare up again.
The immediate market reaction wasn't pretty. Japan's 10-year government bond yield ticked up to around 1.8% on December 1, 2025, its highest level in 17 years, while the 2-year yield climbed to 1.02%, the highest since 2008.
Rising Japanese yields make domestic investments more attractive to Japanese investors, which could eventually lead them to sell US assets and bring money back home.
Source: Business Insider
And it wasn't just Japan feeling the pressure.
On December 2nd, US markets stumbled as these concerns rippled across the Pacific. The S&P 500 was down 0.21%, the Dow dropped 0.47%, and even Bitcoin tumbled 8%, falling to $84,000.
As Nic Puckrin, an investment analyst at The Coin Bureau put it, traders were “waking up this Monday after a quiet Thanksgiving to an overwhelming sense of déjà vu, as a surge in the Japanese yen is once again playing havoc with markets.”
Think about it from their perspective: if you're a Japanese pension fund and you've been buying US Treasuries for years to get better yields than you could find at home, but now Japanese bonds are offering competitive rates, why deal with the currency risk?
You might start rotating money back to Japan, and when hundreds of billions potentially start moving, that matters.
Why This Matters for Your Investment Strategy
You're probably thinking, “Okay, interesting global finance stuff, but what do I actually do about it?”
First, understand your real exposure. Pull up your portfolio right now and look at how much you've got in tech-heavy funds. If you're holding the usual suspects — total market index funds, S&P 500 funds, target-date funds — you've got more concentration risk than you might think.
Information technology stocks make up over a third of the S&P 500's market capitalization and communication services account for another 10%. That's nearly half your money in just two sectors if you're tracking the index.
Second, recognize that we're probably not done with this story. During last year's kerfuffle, analysts had estimated the carry trade unwind was somewhere between 50%–60% complete. Even with markets stabilizing, there's still potentially more unwinding to happen, especially if the BoJ keeps raising rates while the Fed holds steady or cuts.
Third, remember that diversification isn't just about owning different stocks within the US market. It's about spreading your bets across different types of assets that don't all blow up at the same time for the same reason.
30% of physicians invest in residential real estate or rental properties, which makes sense as a hedge against these kinds of market disruptions.
Consider your timeline too. The stock market, on average over the past several decades, has averaged a return of 10%, and according to the rule of 72, your money should double every 7–10 years, depending on your returns.
If you're a mid-career physician with 20–30 years until retirement, short-term carry trade drama is just noise. But if you're five years out from hanging up the stethoscope, this volatility hits different.
Use this handy 72 calculator to check how long it'll take for your savings to double.
Global Finance Affects US Too
One of the wildest aspects of the August 2024 meltdown was how it shattered the illusion that US markets operate in a vacuum.
For years, the narrative was that America's economy and markets were basically an island, largely immune to international dynamics. The carry trade unwind proved that's nonsense.
Japan has run consistent current account surpluses with the US for decades, meaning it has a financial account deficit through its lending to the US government and corporations. In other words, Japan has been one of the biggest buyers of American stuff — our bonds, our stocks, our assets.
When that flow reverses or even slows down, it creates pressure.
What keeps me up at night isn't so much the yen situation by itself. It's what happens if other major holders of US assets start having the same thought process.
While Japan remains the largest foreign holder of US Treasury securities at $1.1 trillion, China holds $816 billion and the UK holds $754 billion.
If multiple countries simultaneously decide domestic bonds look more attractive and start repatriating capital, you could see a much bigger version of what happened last year.
The Fed's Hands Might Be Tied
The Federal Reserve's ability to cut interest rates might be more constrained than people think, precisely because of these international dynamics.
If the Fed cuts aggressively and the interest rate gap with Japan narrows further, it could accelerate the repatriation of foreign capital. That would push US interest rates higher (opposite of what the Fed wants) and could strengthen the dollar in unpredictable ways.
The Fed isn't just managing domestic inflation and employment anymore. They're playing a global chess game where moves by the Bank of Japan or the European Central Bank can completely change the board.
Should You Be Worried?
Look, I'm not here to tell you the sky is falling. Markets recovered pretty quickly after last year's August drama, and the S&P 500 has since erased much of its early losses.
But the December 2nd market reaction to the Bank of Japan's hawkish signals shows this story isn't over. Japan's central bank appears to be “driving the sentiment shift” in markets right now, according to Thierry Wizman, the global FX and rates strategist at Macquarie Group, suggesting that this carry trade unwind is more of an ongoing process than a one-time event.
Karl Schamotta, the chief market strategist at Corpay, echoed the sentiment in a note, “Financial markets are kicking off December in a turbulent fashion as policy tightening hints from the Bank of Japan nudge global rates higher and dull the dollar's appeal.”
The old playbook of “just buy the index and forget about it” might need some updating.
Not abandoning, because index investing is still the best strategy for most physicians who don't have time to actively manage portfolios. But maybe “forget about it” becomes “check in quarterly and make sure you're not overconcentrated in the sectors that got stupid expensive.”
The tech stocks that dominate your index funds? They're profitable, real businesses with actual earnings, unlike the dot-com bubble stocks that were valued on “eyeballs” and “clicks.”
But coming into 2025, the technology sector in aggregate was trading at a premium, reflecting irrational exuberance. When valuations get stretched and leverage gets high, bad things can happen fast.
Practical Steps You Can Take Today
Here are five things you can do right now:
- Log into your brokerage account and actually look at your holdings. Find out what percentage of your portfolio is in the top 10 tech companies. If it's north of 30–40%, consider whether that's a risk you're comfortable taking.
- Make sure you're not making things worse with your taxable account. If your 401(k) is already 35% tech because you're in an S&P 500 fund, maybe your brokerage account doesn't also need to be entirely in QQQ (the Nasdaq 100 ETF) on top of that.
- Look at your bond allocation. As a relatively young physician with decades before retirement, about 5% of your portfolio might be in bond funds, but as you get older and closer to retirement, you should increase this percentage. Bonds held up better during the August 2024 selloff than equities did, which is exactly what you want from diversification.
- Think about alternative sources of return that aren't correlated with the same carry trade dynamics. Real estate (either direct ownership or REITs), value stocks, international diversification beyond Japan, and tech-heavy markets are all worth considering.
- Resist the urge to panic sell if another episode happens. The August 2024 selloff was violent but brief. The people who sold at the bottom and then watched markets recover probably felt pretty stupid.
Stay calm, rebalance if you're truly overexposed, but don't blow up your long-term plan over short-term volatility.
Also read: SCHD vs. VOO: Which should you invest in?
The Yen and Yang Of It All
The yen carry trade is one of those things that's been humming along quietly in the background for years, making some people ridiculously rich while creating hidden fragilities in the global financial system.
Most of us never needed to think about it until it unwound spectacularly last year and reminded everyone that markets are more interconnected than we'd like to believe.
As a physician, you've already got enough on your plate without having to become a currency trading expert.
That's not what I'm suggesting. But understanding that your heavily tech-weighted portfolio has this hidden exposure (and that Japanese monetary policy decisions can send shockwaves through your retirement accounts) is important context for making smart decisions.
The next few months could be interesting. If the Bank of Japan keeps raising rates and the Fed stays put or cuts slowly, we could see more volatility as the last vestiges of the carry trade continue to unwind. Or maybe it all happens gradually and smoothly.
Nobody really knows.
What I do know is that the physicians who weather market storms best are the ones who understand what they own, why they own it, and how different pieces of their portfolio behave under stress. The carry trade is just one piece of that puzzle, but right now, it's a piece worth understanding.
Keep investing consistently, stay diversified in ways that actually matter (not just owning 500 highly correlated US stocks), and remember that volatility is the price we pay for long-term returns.
The stock market doesn't go up in a straight line, and sometimes the reasons for turbulence come from surprising places…like a central bank in Tokyo that most of us never think about.
What's your take on all this? Have you adjusted your portfolio based on carry trade concerns, or are you staying the course? Drop a comment below with your perspective. I'd love to hear how other physicians are thinking about these global dynamics and whether you're making any changes to your investment strategy.
Disclaimer: This article is for educational purposes only and is not investment advice. Consult with a qualified financial advisor before making investment decisions.
Frequently Asked Questions
How big is the yen carry trade?
Nobody knows exactly, but estimates suggest it was massive. One narrow measure points to $350 billion in short-term external loans by Japanese banks, though the true size including leverage and Japanese domestic investors could have been several trillion dollars.
Is the carry trade completely unwound now?
No. By August 2024, analysts estimated it was only 50–60% unwound. With Japanese rates still historically low at 0.5% and further hikes likely, there could be more unwinding ahead, though probably more gradual than the August shock.
Will there be another market crash like August 2024?
Probably not as severe, because positioning has shifted dramatically. Investors are now long yen rather than short, which removes the forced-selling dynamic that caused August's chaos. But more volatility is likely if BoJ policy keeps changing.
Should I sell my tech stocks?
That depends on your overall allocation, risk tolerance, and time horizon. If you're overconcentrated and nervous, rebalancing makes sense. But wholesale dumping of profitable companies because of carry trade concerns is probably overkill. Diversify, don't panic.
How does this affect my 401(k) if I'm in target-date funds?
Target-date funds automatically adjust your stock-bond mix as you approach retirement, which provides some protection. However, the stock portion is still heavily weighted toward US large-cap tech, so you're not immune to carry trade dynamics.
Is real estate a good hedge against this?
Real estate (both direct ownership and REITs) provides diversification because it's not as directly affected by global currency flows and carry trade dynamics. Many physicians find the rental income and relative stability attractive compared to public market volatility.
What should I watch for as warning signs?
Pay attention to Bank of Japan policy announcements, especially interest rate decisions. Watch the USD/JPY exchange rate — rapid yen strengthening could signal trouble. Also monitor the VIX index; spikes above 30–40 often coincide with carry trade stress.
Does this mean I should hedge currency risk in my international funds?
For most physicians with long time horizons, currency hedging adds cost and complexity without much benefit. Unhedged international exposure actually provides diversification. Currency movements tend to balance out over the long term.
