Global Markets-Stocks fall as yen surges; Gulf attacks drive oil near $100 a barrel

Oil stole the spotlight on Tuesday, but the yen's surge may prove the bigger story for global markets. Because of its status as a low-yielding currency, traders have borrowed yen in earnest to fund purchases of higher-yielding assets across currencies, bonds and equities, a strategy known as the carry trade.

But with the BOJ preparing to raise rates, Japanese bond yields at or near record highs and capital beginning to flow home, that trade is starting to unwind. In 2024, the last time the yen appreciated this quickly and carry trades reversed, a surge in volatility battered global equities.

In the last week alone, the yen JPY= has gained nearly 4%, its largest week-on-week increase since July 2024. On Tuesday, it was trading around 153.93, leaving the dollar down 0.3% on the day.

"Despite short-term fundamentals suggesting the move is overdone, it remains risky to stand in its way, particularly given the scope for further carry trade unwinding," ING strategist Francesco Pesole said.