How to hedge against Japanese yen volatility that can spread to other markets

Outside of trade and geopolitics, one source of market volatility could very well come from Japan, as its currency undergoes sharp moves. The Japanese yen lost more than 13% against the U.S. dollar in 2025, as worries around the country’s fiscal health dented confidence and put the currency’s safe-haven status in jeopardy. Last week, the yen stabilized against major currencies after the U.S. conducted a so-called ” rate check ” on the currency, where monetary authorities ask commercial banks for currency quotes. The move led to speculation of possible coordinated U.S.-Japan intervention to boost the yen. Such backstops have happened before, most recently in 2011. JPY= 1Y mountain USD/JPY 1-yr Why is this important to U.S. stocks? Because it directly influences the yen ” carry trade ,” where many of the biggest investors in the world borrow yen and invest in stocks and bonds. If that trade comes under pressure, it will drive U.S. and Japanese bonds — thus putting pressure on equities. That’s what happened in August 2024 when the yen carry trade unwound and the Topix index of Japanese stocks cratered 12% in one day — the second largest decline ever, after the 1987 crash. “Currency intervention can seem like a topic that isn’t related to stocks, but that’s not true. If we get increased volatility from the currency and bond space (specifically the yen and [Japanese Government Bonds]), that will impact stocks,” wrote Tom Essaye, founder of The Sevens Report. Essaye noted, however, that choppiness in the carry trade won’t end the U.S. bull market, “but it can cause some intense volatility.” Ways to hedge Essaye highlighted several ways investors can protect themselves if yen-induced volatility grows. One of them is buying “hard assets,” such as gold and silver. Investors can gain exposure to these metals through the SPDR Gold Shares ETF (GLD) and the iShares Silver Trust ETF (SLV) . Both gold and silver have been on a tear, hitting record highs. GLD is already up 17% in 2026, while SLV has soared by 53%. GLD has an expense ratio of 0.4%, while SLV charges 0.5% in fees. He also advised looking at low-volatility ETFs, such as the Invesco S & P 500 Low Volatility ETF (SPLV) , which is made up of the 100 S & P 500 stocks with the lowest realized volatility over 12 months. The fund is up 2.3% year to date, outpacing the S & P 500’s 1.5% advance.