BCA Research warns the yen carry trade has ballooned to unsustainable levels, posing systemic risks to global markets. The brokerage estimates $2.28 trillion in yen forwards, swaps, and currency swaps held by hedge funds and trading firms, with $35 trillion in yen forwards alone. This massive exposure creates outsized risk when yen appreciation finally resumes, despite current low rates.

Analysts argue rising Japanese interest rates won't trigger unwinding; instead, falling asset prices funded by yen borrowing will catalyze the collapse, citing 2008, 2015, and 2020 precedents. Only 46% of Japanese insurers' foreign assets are hedged, down from 2020 peaks, leaving significant vulnerability as the yen's real effective rate hits 50-year lows. BCA advises medium-term yen longs and cautions against USD shorts against the Indonesian rupiah, Philippine peso, and South African rand.