In financial markets, carry trade is a simple but powerful concept:
borrow cheap money and deploy it into higher-risk, higher-return assets.
One of the most classic examples of this strategy revolves around Japan.
The Japan Example: A Textbook Carry Trade
-
The Bank of Japan has maintained very low interest rates for years.
-
Investors borrow in Japanese yen.
-
That capital is then used to buy Bitcoin, stocks, US dollars, or gold.
As long as interest rates stay low, this system works smoothly. The real question arises when conditions change:
What happens if the Bank of Japan raises interest rates?
Does a Rate Hike Always Shock the Market?
In theory, a rate hike should unwind carry trades:
-
Borrowing in yen becomes more expensive
-
Positions are closed
-
Capital exits risky assets
But in reality, markets often behave differently. This is because markets don’t wait for the news — they price the expectation.
What Does “Priced In” Mean?
A common concept in markets is that something is “priced in.”
It means this:
If everyone knows what’s coming, the market has already acted on it.
For example:
-
The expectation “Japan will raise rates” circulates months in advance.
-
Investors begin selling ahead of time.
-
Prices fall before the announcement.
-
When the news finally arrives, prices move very little — or not at all.
In that case, the rate hike is no longer a shock. It has already been absorbed by the market.
How Can You Tell How Much of the News Is Priced In?
There are several clear signals:
1) The News Is Everywhere, but Price Doesn’t Move
-
Everyone talks about the upcoming rate hike
-
Yet prices remain flat
👉 Most of the news is already priced in
2) Expectations Are Clear, but Volatility Is Low
-
Market consensus is strong
-
Candles are small, no aggressive moves
👉 Positions have already been taken
3) Bad News Arrives, but Price Moves Higher
-
A negative headline is released
-
Price rallies instead
👉 Fully priced-in scenario + potential short squeeze
This pattern has occurred so often that experienced market participants immediately recognize it.
Bottom Line: Markets Price Expectations, Not Headlines
In summary:
-
What everyone knows is not a surprise to the market
-
Non-surprises rarely cause violent price moves
-
If nothing happens when the news hits, the message is simple:
It already happened earlier.
Markets buy the future and use the present only as confirmation.
