Can the S&P 500 Reach New Highs Despite the Death of the Yen Carry Trade?

Key Takeaways

Japanese long-term bond yields continue to surge.
The S&P 500 trades only 1.3% below its all-time high price.
Japan could raise interest rates, destroying the yen carry trade.

Global markets are entering one of the most pivotal moments of the decade.

Japanese long-term bond yields are surging higher, the yen carry trade is showing signs of strain, and the S&P 500 is hovering just a breath below its all-time high.

At the same time, the Federal Reserve has officially ended its three-and-a-half-year quantitative tightening cycle, signaling a significant shift in global liquidity.

The shift has sparked a wave of interest from investors asking: What is quantitative tightening, and will its end suddenly boost risk assets?

If the yen carry trade unwinds while the Fed injects fresh liquidity, markets could face volatility.

Let’s break down what changed and what comes next.

What Is the Yen Carry Trade?

The yen carry trade is one of the most significant engines of global liquidity.

For decades Japan kept interest rates near zero, which meant investors could borrow yen cheaply, convert it into dollars or other currencies, and buy higher-yielding assets elsewhere.

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What Happens When Bond Yields Rise?

Bond yields rise when investors demand more compensation to lend to a government.

This means falling bond prices, higher borrowing costs, and rising debt-service pressure.

For Japan, with debt above 250 percent of GDP, every tick higher makes the system more fragile.

⚡️This chart is about the end of the global financial regime that kept the entire world artificially stable for 30 years.

Japan is simply the last pillar to crack.

When you look at that yield going vertical, what you are actually seeing is the same force that has been driving… https://t.co/t6METo4JYA

— SightBringer (@_The_Prophet__) December 4, 2025

Higher Japanese Bond yields also shift global capital.

Japanese savers suddenly get paid more at home, reducing their need to invest abroad.

This reversal can unwind decades of cheap global funding, strengthen the yen, and inject volatility into markets that relied on Japan staying at zero.

Fed Begins Policy Shift

The U.S. Federal Reserve has officially ended its quantitative tightening policy after a three-and-a-half-year period.

This marks a key shift in liquidity conditions.

Analyst Wilberforce Theophilus outlined the benefits of ending QT for the markets:

During QT, the Fed was draining money from the system every month. They were reducing their balance sheet by tens of billions, pulling liquidity out of markets at the fastest pace in history. At the same time, they were raising interest rates. That combination created pressure everywhere. Risk assets weakened. Dollar funding became expensive. Even global markets felt the squeeze.

When combined with potential rate cuts on Dec. 9, users are speculating that this will be bullish for the markets.

Long-term borrowing costs are expected to decrease, thereby softening the yield curve.

The Federal Reserve moved from Quantitative Tightening to Quantitative Easing. Here is what you need to know and why everybody is excited about this development.

This isn’t a small policy change. It is one of the most important financial shifts of our time.

During QT, the Fed…

— Wilberforce Theophilus (@Eze_Wilberforce) December 2, 2025

With rate cuts potentially arriving on December 9, many investors are already speculating that this combination could become a powerful bullish catalyst for markets.

Moreover, the Fed has just injected $13.5 billion into the banking system through overnight repos, the second-largest spike since the COVID-19 pandemic.

Analyst Bull Theory believes that this will lead to quantitative easing soon, similar to what happened in 2019.

Well-known analyst Benjamin Cowen even highlighted how, during the previous cycle, ALT/BTC pairs bottomed near 0.25 right as QT ended.

He suggested the possibility that the same setup could be forming again.

While the crypto impact remains uncertain, the end of QT has historically been positive for stocks, as increased liquidity tends to support a stronger risk appetite.

Can S&P 500 Reach New Highs?

The U.S. stock market crashed on Oct. 29, falling by 6% over the next 23 days.

Adding to the severity of the decline, the S&P 500 broke down from a 178-day ascending parallel channel.

Traders were watching closely to see if the breakdown leads to a much more severe decline.

However, this was not the case. In fact, the exact opposite happened.

sp500 Stock — SP500 Daily Chart | Credit: Valdrin Tahiri/ TradingView

The S&P 500 recovered and moved back inside the channel.

Additionally, it broke out from a diagonal resistance trend line (dashed) and confirmed it as support today.

If the S&P 500 price increases as expected, aided by the end of the QT program, it could reach the next resistance at $7,000.

After that, the reaction there can determine whether the S&P 500 hits a new all-time high or not.

What Happens Next?

The end of quantitative tightening is a rare, market-shifting event, and historically, it has coincided with market gains.

Stocks are regaining momentum, liquidity is rising, and expectations for December rate cuts continue to build.

However, the significant surge in Japanese Bond yields is worrying and could have massive ramifications for the global markets.

But whether this leads to new all-time highs or just another short-lived bounce depends on how markets react to the death of the Yen Carry trade.