Japan carry trade unwind: how it threatens US bonds

0:00Your 401k, your stock portfolio, they just got a lot riskier and you probably don't even know it yet. Right now, as I'm speaking to you, Japan, the country that owns more of America's debt than any other nation on Earth, is facing a financial crisis that could send its tsunami waves all the way into your retirement account, your mortgage account, and the US stock market overall. We're literally talking about $1.2 trillion in US Treasury bonds potentially flooding the market. We're talking about a $20 trillion carry trade on the verge of collapse and a debt bomb that makes 2008 look like a warm-up act.

0:41My promise to you is that by the end of this video you'd understand exactly what's happening, why Wall Street isn't telling you anything about it, and most importantly what you can do to protect yourself, maybe even benefit before this thing blows up. My name is Felix Prehn. I'm an ex-investment banker. I've seen how the financial industry works from the inside. I'm also the founder of the Go Academy where we've taught over 20,000 students so far how to become better and safer investors and traders. I'm also the co-founder of Trade Vision where we give you access to the real life news and data that Wall Street has access to.

1:17This back there is Winston. He's our chief research hound. He has a very large nose and he's very good at sniffing out and explaining Japanese markets. Let me just walk you through a couple of data points here. Japan's debt to GDP ratio is 234%. Think of it this way. Imagine you make $50,000 a year, but you owe $117,000 in debt on a credit card. It's pretty bad, right?

1:45Now, for context, the US is about halfway there at about 120% which is already banana republic level, but Japan is literally double the US level. They're the most indebted economy on the planet that matters. No major economy has survived this level of debt without defaulting, basically saying sorry, I can't pay you back, or hyperinflation where they print so much money that their currency becomes worthless. Zimbabwe being an example.

2:18Now you might be wondering how did Japan get into this? Well, it goes back decades. In 1991, Japan had a massive stock market and a real estate bubble and that popped. At one point, central Tokyo was worth more than all of California. Just picture that. Essentially, it was like the 2008 housing crisis in America, but much, much worse. The economy basically stopped growing for 30 years. It's called the lost decades, 30 years of stagnation.

2:51Now, they did try to fix it. The Japanese government just kept spending more and more money trying to stimulate the economy. They kept borrowing and borrowing and issuing more debt to fund all the spending. And the crazy part, they also kept interest rates at basically zero, sometimes even negative. So think about that. In Japan, you could borrow money for free because interest rates were zero or negative. Actually, if they're negative, they pay you to borrow their money. It's like a credit card with a negative interest rate. The more you spend, the more you'll make.

3:27It's a magic trick, isn't it? How did nobody call them out on this? Well, the answer is the Bank of Japan. It's their version of the Fed. It became the biggest buyer of their own government debt. They literally just printed money and then they used it to buy government bonds with it. So they financed their own debt. It's basically like you having a massive credit card bill, but you can print your own money and then you use your own money to pay off your credit card bill. Now in the real world, that doesn't really work. But when you're a central bank, you can actually get away with it for quite a while, 30 years apparently.

4:04And this kept Japan going. Interest rates at zero and the debt is irrelevant because there is no interest, right? It's just debt. We don't care. We don't have to pay it. But the magic trick has just stopped working. In November 2025, something unprecedented happened. Japan's new prime minister announced a massive stimulus package, talking about $130 billion in new spending.

4:27Fairly normal in economics. Government announces a stimulus. What should happen? Well, interest rates should actually drop. Why? Because stimulus means economic growth, which means the government will have more tax revenue to pay back its debt. That's kind of the weird theory. Investors usually like it when governments spend money. But Japan's bond market did exactly the opposite of what we'd expect. When they announced the stimulus, their interest rates spiked massively to a record we haven't seen in almost 20 years.

5:02Now, what does it mean when your interest rate goes up and you've got debt up to your eyeballs, up to your hairline even? Well, it's an earthquake. The market is saying we have lost confidence in Japan's ability to pay back its debt. And if you're still with me, you might be thinking, why the heck do I care? I don't live in Japan. I get you. Stick with me for a minute because you will understand how this is a huge ticking time bomb under the US stock market and your portfolio and your retirement.

5:35Now, here is why this is such a disaster. Japan spends 23% of all its tax revenue on interest, not paying down debt, just interest. But when the interest rates go up like they just have a few days ago, so much of the tax revenue would go on interest, not 23% but way more, that they would not be able to pay for basic government services, right? So you get into basically the shutdown that the US just had, but permanent. No government services that can work anymore because there isn't any money.

6:14So Japan now has two options. One, they can print more money. That'll crash the yen even further. It could cause massive inflation. Option two, do nothing and they go bankrupt. So there is kind of no good option here, right? They're damned if you do, damned if you don't kind of thing.

6:33Now, before I show you how this directly threatens your money, I want to make sure you're getting the full picture of how Wall Street really works. And in our academy we have more than a dozen of my mentors who are all ex Wall Street goats. Think Goldman Sachs, think Bear Stearns, think Merrill Lynch, Deutsche Bank and so on, the big banks, the big hedge funds. And they worked for these companies for 10, 20, 30, 40, 50 years. And now you have access to those same mentors if you decide to go down that path.

7:06But the reason I'm mentioning it is because we coach one on one and there is always going to be a limit to how many people we could teach one on one. It's never really been a problem. It isn't a problem right now, but we are going to have to stop taking on new students in our flagship programme which is called the Wall Street Protocol. Why? Because we're going to get very shortly within days to a point where we'll say, hey, we're full. We want to deliver for our existing students. And until that batch graduates, we will not take on more students in the Wall Street Protocol.

7:39So there's a little bit of urgency here. If you ever thought about learning from my mentors and myself, take some action now, which also happens to coincide with our Black Friday offer, which is perhaps what caused this whole wonderfulness. It makes me very happy because it just means a lot of people want to learn and we're helping a lot of people, but we want to make sure we are able to deliver you guys tremendous value and access and availability. So if you want to be part of this final batch here on the Wall Street Protocol, you can book yourself a free call with my team. It's a free strategy call. We walk you through what it looks like to work with my team and my mentors. You can do that at felixprehn.org/freedom. There's a link down below. Doesn't cost you a thing. It's completely risk free. We won't push you. We won't try to hard sell you or anything like that because we actually have the opposite problem and we don't do that anyway. We just believe people need to have a proper conversation to be able to make a good decision because we want people who actually are in the right place and succeed. So go to Felix freedom. My hope is that that'll put you on your path to freedom. There's a link down below in the description.

8:40Now here is where this stops being a Japan problem and it becomes your problem. Japan is the single largest foreign holder of US debt. They own about $1.2 trillion in US debt. That's more than the GDP of say Mexico or the Netherlands depending on where you hail from. It's more than the market cap of Apple. It's big.

9:12And over the past 9 months while other countries like China have been selling US debt, Japan has actually been increasing their holdings. Why? Because Japanese bonds pay basically nothing. So imagine this, you're a Japanese pension fund or insurance company or something. At home, you get zero returns. Well, you go to the US and you get 4 or 5%. So what are you going to do? You're going to buy American debt, right? It's just purely logic.

9:40But here's the problem. The math just broke. When Japanese bond yields were at zero and the US was at 4.75%, it's been like this for years. Japan, free money, right? So you can borrow in Japan and you can send the money to the US and you get 4.75%. It's free money. So if you're a financial institution, you're going to borrow as much as you possibly can and you're going to send all that money and buy US government debt with it because US government debt is zero risk, right? So what could possibly go wrong? You're just going to make 4.75% on money that wasn't yours. It isn't costing you anything.

10:14This is like the greatest getting rich scheme ever. Mister Ponzi is turning in his grave thinking, I should have thought of that. But now, Japanese debt is already giving you 1.8% right now. 1.8%.

10:33Now, US interest rates have come down. You get about 4.2%. So the difference is shrinking. You might be thinking, it's still a good business, it's still free money. Well, they hedge their currency and that costs some money and it's gotten more expensive. So this is no longer like the obvious 100% money making guarantee Ponzi scheme that it's been for decades. So suddenly keeping your money at home in Japan makes some sense.

11:04And that's why a lot of analysts are predicting a massive wave of money leaving the US so it goes back home. Japanese insurance companies, pension companies, and banks have trillions of dollars invested in US assets. As Japanese interest rates rise, the maths on that stops making sense. So they're going to start selling US government debt. They're going to bring the money back home.

11:27We're not talking about a little bit of selling. We're talking about hundreds of billions, maybe even that full $1.2 trillion over time, leaving the US markets. Now, why does it matter to you? Because the US government is addicted to borrowing just like the Japanese. The US pays a trillion in debt. Interest, just interest. It's more than national defence. It's more than Medicaid. It's more than veterans benefits. Interest on debt is now the 3rd largest item in the government budget. Only social security and Medicare is a little bigger.

12:02Now imagine what happens when Japan, the US's biggest lender, starts selling billions of US debt. When there are more sellers than buyers, what happens? Prices go down. Now, what happens when bond prices go down? And this is not obvious, it always bends my head too. When the price of a bond goes down, the interest rate on that bond goes up and that makes debt more expensive.

12:33US is already paying a trillion in debt. If it goes up just 1%, when rate goes up 1%, just 1%, you have about an extra $200 to $300 billion in interest just for the US. So where does the money come from? Well, what are your choices? Well, you cut spending. Like that's never going to happen. Politicians, it's a popularity contest. They're going to do the popular thing, not the responsible thing.

13:03You could print more money. What does printing more money do? Causes inflation. It devalues every dollar you own. But it also affects you more directly because the interest rate of the government is the basis for everything else. So your mortgage rates will go up, your car loans will go up, your credit rates will go up, business loans will go up, which is how you strangle the economy. And that's how Japan affects you no matter where you are in the US or actually anywhere in the world because you all have exposure to American stock markets.

13:39Now, we've seen this before. August 2024, go back on my channel, August 2024, I walk you through back there. Back then too, Japan raised interest rates for the first time in 10 years. Within one week, Bitcoin went from 65 to 50,000, minus 23%. The NASDAQ dropped 10%, the S&P fell 8%. We called it Black Monday panic. Now it was temporary because the Bank of Japan backed off and market stabilised. But right now the market is forcing Japan's hand and they're basically saying this trade, this Japan trade, this borrow free money and invest it in the US trade is broken. It is gone. It is permanent.

14:23And maybe this Japan trade is still a bit fuzzy to you, which I would get because it's a strange concept. Let me walk you through an example. Here is what you do in the past. Financial institutions have been doing this for decades. You borrow $100,000 from Japan and it costs you basically nothing. Maybe $500 a year, maybe nothing at all. You then invest that money in US government bonds and you make $4,250 profit on this. What do you do with the profit? Well, you put the profit into stocks, into bonds, into real estate in the US.

14:55And imagine you don't do this with $100,000, but with $100 million or a billion dollars or $100 billion. And you start to see it's just free money. Why would you not do this? And in fact, the whole trade is worth about $20 trillion. So one or two people have heard of this. That's larger than the US economy, by the way. And they've just been getting free money by borrowing for nothing and basically lending it to the US.

15:17Now, this actually gets worse. I'm not going to walk you through the numbers because it's a bit tedious, but take a screenshot of this if you're interested. Basically, these hedge funds are doing these trades, they borrow heavily. They leverage heavily. This isn't their money, which means a small loss becomes a catastrophic huge loss and they have to sell everything to survive another day. It's basically like a margin call. That's essentially what it is. They have to sell.

15:45Now, you probably didn't know what the carry trade was as of right now and you still don't really know how it affects you. Well, if you own an S&P index fund, if you have a tech heavy portfolio, if you have any cryptocurrency, you own a REIT or any kind of bonds, then you are exposed to this carry trade and its risk. You didn't make the carry trade yourself, but the institutions that own these assets alongside you, they did. And when they are forced to sell, well, your assets go down with it.

16:12So Wall Street doesn't really like talking about it. But they've built this massive interconnected web of borrowing. And when one of those threads in that network breaks, the whole thing can actually unravel. But there's good news. We've seen this play out before, not quite as big as this, but we know what the concept is here. And the concept is that if you're selective with your stocks, you can actually come out a winner out of these things.

16:38First of all, you have to understand the concept. So well done for watching this far. And the winners are typically these companies in these sectors. It's not financial advice. It's my humble opinion based on my research and of course Winston's research back there, he's snoozing under the Christmas tree. That's very cute, isn't it? Winston, what's your favourite sector for hyperinflation? We're not going to get much out of him. Thankfully, we got a presentation out of him first.

17:03So what have we got? Energy companies. Oil and gas typically does quite well unless the economy completely tanks. Different story. Unlikely to with the kind of government spending we have in my opinion. Materials and mining, and we've been liking a lot of gold miners, silver miners this year, has made a lot of money. Gold and silver miners, there we go. But also other rare earth plays and so on.

17:23And then you don't have to sell every tech stock out there, but you want to focus on your stocks with real pricing power. Who has real pricing power? Well, if some brand raised prices by a dollar, would you still buy it or would there be an alternative you could possibly buy? This is where you got to ask yourself. So I've got some of Winston's chew bolts on here. If these became significantly more expensive, I would probably buy a different brand. Because Amazon suggested to me these are great actually. Chuckit is the brand. Love these. They're bouncy and they glow in the dark.

17:56So that's not product placement. We don't do that around here. Just genuine Winston experience. He loves these. They're really bouncy and you can find them when you throw them in the dark, which is what we do every night now. So it's companies with a big tech moat. Can't replace it. It's Microsoft. It's Facebook because it's hard to get whatever many users they have, 3 trillion or something. Apple, pretty hard to get a billion people to buy your phone. Coca-Cola, you create an addictive taste.

18:29There are loads of these companies out there, but you just don't want to be in the one that's selling something that's pretty generic. Think about that. That's a big one. Companies with lots of debt are a problem. That's why I'm a little bit concerned about all this AI spending because that's all debt fuelled, starting to be. Banks could get hit pretty hard because they will have exposure to this trade. They will own a lot of these assets.

18:57And the consumer is going to get scared. So discretionary consumer stocks, what is that? Well, Macy's, Nike, that sort of thing. Stuff you want to buy, but you don't have to buy. Now, flip side to that, your box stores, your discount stores, they typically do quite well because you're still going to buy groceries and stuff you need. So you're going to go to the cheaper. So you want to really own businesses that produce real things with real value that their customers need. They can't replace them easily.

19:26So what can you do right now? Assess your exposure. How much of your money is in dollar assets? That might be 100%. For me, that's nearly 100%. I actually don't mind that. But you want to diversify. You can put some per cent of money into gold and silver. I'm not saying a percentage here. That's just a random number. It could be 5%, 10%, whatever you feel comfortable with. Pay down debt that has a variable rate. If you have a loan that has an interest rate that can change, do something about that.

19:56Companies, we want to focus on strong balance sheets. It's a workbook that comes with this video that you can download that'll give you a lot more insight on the whole thing.

20:05Shebang together. We also have something called Better Stocks GPT, which is a tool I built where you can see how strong every single stock is. You just type it in, and that's part of our free community which is down below, Felix Stocks as resource, which is also where you get the workbook.

20:22And then you want to stay informed. I do that by using our app Trade Vision. We get the news like that, just alerts. But really you want to have a plan, what will you actually do if the market crashes, right? And I give you quite a lot of information around that on this channel here. Check out our educational playlist because you need to have the awareness and the knowledge. We have some of that now, but you also need to know how you take action, right?

20:48And for me, my experience with thousands and thousands of students is that really the only way you build up that confidence is by having the ability to get some feedback live when the market moves. And as I said, book a free call with us, felix.org/freedom, before we close the Wall Street Protocol this week for new enrolments.

21:07So, early warning system, take a screenshot of that. I'm not going to run you through every single number here. It would get tedious, but take a screenshot of that so you know what to watch out for. Here's some more indicators. Super super useful. And yeah, you got that out. You got a screenshot? Yeah. Brilliant.

21:21Okay, so bottom line, something big's breaking and we tried it last year and they backtracked, but this time it's a lot more serious. So you now know more than 99% of people. Seriously, bit of a long concept, bit of a complicated concept, but you now understand it on a high level. So therefore, you are not helpless.

21:40So you got to just figure out what do you do with this information. I've given you some options. Hop into the free community or simply book a call with us, free strategy call. See if mentoring from some Wall Street goats is what would take you to your goals and your targets and your freedom.

21:55And if you got some value out of this video, share it with somebody who might also get some value out of it. Winston and I say thanks for watching and we wish you great success. If you have a 401k or you own the S&P or the NASDAQ or straight out Nvidia stock, then what I'm about to show you could save you or cost you thousands if not hundreds of