A Yen Carry Trade Unwind Cost the IHSG 3.4% in One Day. The 2026 One Barely Touched It
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9 min read
On Monday 5 August 2024, the IHSG fell 248.4 points, or 3.4%, and closed at 7,059.6. Nothing had happened in Indonesia. No bad inflation print, no political shock, no earnings disaster. The trigger was in Tokyo, and it had a name: a yen carry trade unwind.
Two years later, in late July 2026, the same trade came under pressure again. The United States and Japan bought yen together for the first time in years. The yen jumped more than 4% in two days. And the IHSG did almost nothing.
Same mechanism. Very different outcome. The gap between those two episodes is the useful part, so this post walks through both.
A carry trade is one of the simplest ideas in global finance. You borrow money in a currency where interest rates are low, convert it into a currency where rates are high, and pocket the difference in yield.
For roughly three decades, Japan was the cheapest place on earth to borrow. The Bank of Japan (Japan's central bank, usually shortened to BOJ) held its policy rate at or below zero for years. So a global fund could borrow yen at almost no cost, sell those yen for dollars or rupiah, and buy something that paid a real yield.
Here is the gap as it stands right now, using two central bank policy rates you can check yourself:
| Central bank | Policy rate | As of |
|---|---|---|
| Bank of Japan | 1.00% | Held at the July 2026 meeting, highest since September 1995 |
| Bank Indonesia | 5.75% | Held at the 19 August 2026 board meeting |
That is a gap of 4.75 percentage points a year. Borrow the equivalent of Rp1 billion in yen, put it into Indonesian assets, and the yield difference alone is worth about Rp47.5 million a year before anything else happens.
The carry trade has one obvious weakness. You borrowed yen, so one day you have to repay yen. If the yen gets stronger while you are holding the position, repaying costs more than you borrowed.
An unwind is what happens when enough investors decide to close that position at once. The sequence feeds on itself:
The important detail for an Indonesian investor is step three. The assets being sold have nothing to do with why the yen moved. They are sold because they are liquid and because the investor needs cash now. That is how a Tokyo interest rate decision ends up moving a stock on the Jakarta exchange.
The 2024 unwind had two triggers a few days apart. On 31 July 2024 the BOJ raised its policy rate from around 0.1% to 0.25%, a small move in absolute terms but an unexpected one. Then on 2 August the United States reported just 114,000 new jobs for July against about 175,000 expected, which raised the odds of US rate cuts and narrowed the yield gap from the other side.
Both changes pushed in the same direction: the reason to hold the carry trade shrank. By Monday 5 August the exit was crowded.
| Market | Move on 5 August 2024 |
|---|---|
| Nikkei 225 (Japan) | Fell as much as 12.4%, closed down 4,451.28 points at 31,458.42 |
| KOSPI (South Korea) | Fell more than 8% |
| IHSG (Indonesia) | Fell 3.4%, down 248.4 points to 7,059.6 |
| S&P 500 (United States) | Fell about 3% |
The IHSG traded between 6,998 and 7,308 that day. For a broad index, a 310-point intraday range is a lot of movement for something with no domestic cause.
Across the whole episode, the Bloomberg EM FX Carry Risk Premia Index, which tracks how a basket of emerging market carry positions performs, fell about 4% in August 2024. That is the cleanest single measure of how much the unwind hurt emerging markets as a group.
By mid 2026 the setup looked worse, not better. The BOJ had raised its policy rate to 1.00% in June 2026, the highest since September 1995. Rate hikes are exactly what is supposed to kill a carry trade.
And yet the yen kept falling, reaching 40 year lows near 164 per dollar in late July 2026. Traders were still short the yen in size. Hedge funds held roughly 124,575 contracts, about US$9.5 billion, betting on further yen weakness as of late July 2026, close to the largest short position since 2007.
Then the intervention came. On 31 July 2026 the United States and Japan bought yen in a coordinated operation, which Japan's government confirmed on 2 August 2026. It was the first joint action of its kind in many years. The yen strengthened about 4.2% in two days, from about ¥163.85 to about ¥157.30 per dollar.
Go back to that yield gap. Bank Indonesia pays 5.75% and the BOJ pays 1.00%, so the carry earns 4.75 percentage points over a full year.
That is the entire risk of a carry trade in one line. You collect the yield slowly and you can lose it all in an afternoon. It is why these positions get closed in a rush rather than wound down calmly.
Here is the part that contradicts the simple story. After the July 2026 intervention, the Bloomberg EM FX Carry Risk Premia Index fell only about 1%, roughly the same as the equivalent measure for major currencies. In August 2024 the same emerging market index fell about 4%.
The rupiah did not crack either. It strengthened 0.47% to Rp17,990 per US dollar on Friday 31 July 2026, the day of the intervention, and added another 0.06% to Rp17,980 on Monday 3 August 2026. Other Asian currencies rose too: the Thai baht gained 0.80%, the Philippine peso 0.74% and the Singapore dollar 0.64%.
The IHSG was similarly calm through that week. It closed up 0.50% at 6,351.14 on Wednesday 5 August 2026, slipped slightly to around 6,343 on 6 August, and eased 0.14% on 7 August. Nothing resembling a 3.4% day.
Two things explain the difference.
Funding moved out of the yen. Investors had already diversified where they borrow. Instead of funding emerging market positions with yen, many switched to euros and Swiss francs. Borrowing in euros to buy a basket of the Brazilian real, Colombian peso and Turkish lira was still up roughly 19% in 2026, the strongest year to date performance since 2005. When the funding currency is not the yen, a yen shock does not force the position closed.
The trade was rebuilt, not abandoned. Rather than treating the intervention as a reason to exit, carry traders used the stronger yen as a cheaper entry point and rebuilt their short yen positions. Within about two weeks the yen had slid back toward 160 per dollar.
The honest takeaway is narrower than either headline suggests.
A yen shock can reach Indonesian assets, but not mechanically. Indonesian markets get hit when foreign investors are forced to raise cash quickly, not whenever the yen moves. In 2024 they were forced. In 2026 they were not.
The yen and the rupiah are not tightly linked on their own. The 2026 episode is a clean example: a large yen move, and the rupiah went the other way, helped mostly by a falling US dollar rather than by anything specific to Japan.
Domestic drivers usually dominate. This is the same lesson the Fed's balance sheet turned supportive while the rupiah still hit a record low in 2026. Global liquidity sets the background. Indonesia's own external position decides what happens inside it.
A foreign selling day is not automatically a falling market. That relationship is looser than the headlines imply, as the day foreign investors net sold Rp355 billion while the IHSG rose showed.
If you want to see whether the carry trade channel is live at any given moment, you need the inputs in one place rather than in scattered headlines: policy rates on both sides of the trade, the USD/IDR rate, and how they have moved together over time.
That is what the Macro Context page is for. It puts the BI rate, the Fed rate, USD/IDR, CPI and yields on one screen with their history, so you can see for yourself whether a move abroad actually showed up in Indonesian numbers or just in the news.