The impact of the reversal of the yen carry trade is mainly reflected in the following aspects:

Asset price volatility: The unwinding of the yen carry trade leads to a withdrawal of funds from higher-yielding risky assets, which usually triggers a decline in asset prices.

Credit Market Tightening: When financial institutions begin to unwind the yen carry trade, they need to reduce leverage by selling assets and paying down debt. This results in less liquidity in credit markets and tighter credit conditions.

Risk appetite changes: There is a negative correlation between the VIX index and the size of the yen carry trade. When market participants expect low risk and high return, the size of yen carry trade increases, and vice versa.

The subprime crisis intensified: As financial institutions unwound their carry trade positions, the prices of subprime-related assets fell further, exacerbating the tightening of credit markets and the losses of financial institutions.

The recent sharp sell-off in U.S. stocks, led by the technology sector, largely reflects a massive reverse unwinding of the carry trade.

According to the report released by Osamu Takashima AC, Daniel Tobon and Brian Levine of Citi, the threshold of the US-Japan interest rate gap between the US and Japan after the USD / JPY has turned downward after the upward trend in the past is about 4.75%. That spread is currently about 5.25%, and getting to that level would likely require three rate cuts from the Fed, a process that would take about six months.