The Carry-unwind Shortcut: JGB Curve Location, Volatility States, and Global FX Repricing

Abstract

Market commentary often compresses a rise in Japanese government bond yields into a single causal chain: yen funding becomes more expensive, carry trades unwind, and global risk assets reprice. This paper tests the empirical content of that label. Using daily Japanese yield-curve innovations, a 12-currency exposure panel, and a separately constructed non-yen high-minus-low carry factor from 2013 through July 2026, the design separates short-end from long-duration shocks, positive from negative repricing, and high- from normal-volatility states. The carry-unwind signature is sharply conditional. In the currency panel, positive short-end shocks produce a stronger five-day loss gradient among economies with larger pre-determined yen-credit exposure only in high-volatility states; the interaction survives Holm correction (p = 0.018), and the positive-minus-negative high-volatility contrast also survives (p = 0.010). In the separately constructed carry factor, the total slope on positive short-end repricing is negative at one and five days in high-volatility states, with Holm-adjusted p-values of 0.016 and 0.018. Negative short-end and long-duration shocks are close to zero. Event paths are directionally consistent but weaker: funding-type shocks are followed by a 1.51% twenty-day carry loss versus 0.31% after duration-type shocks, with a suggestive difference (p = 0.064). A 90th-percentile volatility threshold and release-lag checks preserve the main ordering. The evidence supports a state-contingent classification, not a generic causal claim: carry unwind is not a synonym for rising JGB yields.

Author abstract from the research manuscript. Typography and line breaks have been normalized; the linked source may show a different manuscript version.