Kevin Paffrath claims the Japanese carry trade is an exacerbation of the current market decline as investors attempt to preemptively pay off margin debt due to fear of the Japanese yen strengthening.

“I'm starting to get more and more convinced that the carry trade may be exactly an exacerbation of what's going on along with some risks in the AI trade.”

Investors are currently selling U.S. stocks to preemptively exit Japanese carry trade positions due to fears that rising Japanese bond yields will force the central bank to raise rates.

“So it's almost like people are FOMO. I don't know if that's the right word, but like pre-elling the carry trade, right? So now if the carry trade actually comes, then it's worse”