Global markets faced a beating on Monday before recovering on Tuesday. Experts linked the market’s price action to the unwinding of the yen “carry trade,” which Arindam Sandilya, co-head of global FX strategy at JPMorgan, says is only half done.

What Is The Yen ‘Carry Trade’?: Japan has historically had low interest rates. Investors took advantage of the cheap Japanese yen by borrowing the currency at extremely low rates, converting it to a currency with a higher interest rate and investing it in financial assets.

Investors pocket the difference between the low Japanese interest rates and the higher rates of return elsewhere.

The trade collapsed as the yen strengthened, the Bank of Japan raised interest rates for the first time in decades and the U.S. market weathered recession fears. This caused asset managers to “unwind” their trades, further strengthening the yen.

When Will It End?: Sandilya appeared on Bloomberg TV on Tuesday, expressing his belief that the trade is “not done” unraveling.

"We think that the ‘carry trade’ unwind within the speculative investing community is maybe somewhere between 50% and 60% complete, so we are not done by any stretch,” the foreign exchange strategist said.

He noted the yen’s status as the cheapest currency in the G10 would make it more likely for the unwind to snowball.

“The technical studies we’ve done suggest that once you get very large, sharp moves in short periods of time like we’ve had with the yen over the past week or so, the technical damage that it inflicts on portfolios is not easily undone. You don’t tend to get V-shaped reversals back from where the move started from.”

Sandilya said it is too early to tell whether the Bank of Japan made a mistake in raising interest rates.

The Japanese Nikkei 225 index crashed over 12% on Monday before regaining much of its losses on Tuesday.

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