Yen intervention warning: Your stocks are at risk

If you own U.S. stocks, you are also betting on the Japanese yen. A possible government intervention in Japan’s currency market is sending a clear warning to investors. The yen has been losing value against the U.S. dollar for months. To stop this fall, Japan’s central bank may step in and buy large amounts of yen. This move, called a currency intervention, would suddenly strengthen the yen. Why does this matter for your stock portfolio? Many large investors borrow cheap yen to buy U.S. stocks. This is known as the “carry trade.” If the yen jumps in value, these investors must sell their stocks quickly to repay their yen loans. A sudden yen rally could trigger a wave of selling in U.S. markets. The link between the two is strong. When the yen rises, U.S. stocks often fall. Right now, the yen sits near a 30-year low against the dollar. Traders expect an intervention soon. That makes your portfolio more vulnerable than usual. Watch the yen. If it moves sharply higher, prepare for a possible drop in your stocks.