On July 14, 1789, King Louis XVI famously recorded, "Nothing happened" in his journal, on the very day the Bastille was stormed—a moment now recognized as the start of the French Revolution. This remark, seemingly oblivious to the broader political upheaval, has become emblematic of how significant events can be underestimated or misunderstood in real-time.
A similar dynamic can be observed in the financial markets between July 10th and August 5th, 2024, when the Japanese Yen (JPY) surged nearly 11% against the US Dollar. This abrupt move triggered sharp declines across major indices: the Nikkei 225 dropped almost 25%, the Nasdaq 100 fell by nearly 14%, and the S&P 500 slid around 8%. These dramatic shifts were largely attributed to the unwinding of the Yen carry trade—a strategy where investors borrow in low-yielding currencies like the JPY to invest in higher-yielding assets abroad. When the Yen appreciates, this trade becomes unprofitable, leading to a rapid and often chaotic exit from risky assets.
The situation was somewhat stabilized by Bank of Japan (BOJ) Deputy Governor Shinichi Uchida’s statement on August 7th, assuring markets that the BOJ would not raise interest rates during times of market instability. While this statement provided some relief (albeit with a clearly ominous undertone), the Yen remains near its strengthened level, reflecting ongoing market tension.
Interestingly, King Louis XVI’s "Nothing happened" was actually a reference in his hunting journal, not to the political turmoil surrounding him. This detail underscores how people can go about their daily lives even amid monumental change. Similarly, the August 16th Bloomberg headline, "Carry Trade that Blew up Markets is Attracting Hedge Funds Again,"1 suggests that the recent turmoil in the markets might be prematurely dismissed.
Rather than focusing solely on isolated events, it’s crucial to consider the broader context. When the Bastille was stormed, Revolutionary France was grappling with crippling inflation, an insolvent government, and a poor harvest—all while the king was preoccupied with hunting. Similarly, the carry trade unwind must be viewed in its broader context: strategies that were effective in a previous market environment may not be reliable under today’s conditions. However, we frequently see the unwind of popular trades without significant implications on the broader market, and this could be another such case.
It took nearly four years after the storming of the Bastille to the fall of the French monarchy—ample time to recognize the shifting environment and respond. We must stay mindful of the differences between past and present, and their potential implications. While it is reasonable and usually correct for our base case to assume inert stability, we must assess whether the environment has changed and if we remain optimized for the past. After all, past performance is not indicative of future results.
Important Disclosures & Definitions
1 David Finnerty, August 16, 2024, ‘JPY USD: Yen Carry Trade That Blew Up Markets Is Attracting Hedge Funds Again’. Retrieved 09/05/2024 from Bloomberg.com
AAI000750 09/10/2025