Bad Jobs = Good News For Stocks...Not So Fast.
Key Takeaway: A weak jobs report just took a September rate hike off the table, but the risk worth watching is not the Fed. It is the yen carry trade, a massive borrow-cheap-in-Japan, buy-US-stocks bet that has quietly propped up this market and could unwind fast if Japan moves. Here is what it is and why it matters to your portfolio.
Two things landed this week that most headlines treated as unrelated. The jobs report came in ugly, and the Japanese yen sat near a 40-year low. On the show, Ron and I connected them, because together they point at a quiet risk that has been holding this market up, and one that most investors have never even heard of. Let me walk you through it.
What did the jobs report actually say?
It was not good. Non-farm payrolls came in at negative 23,000, the first negative month in years, and after downward revisions to May and June, the economy actually shed about 103,000 jobs. That is a real shift, not a rounding error.
As recently as the day before, a majority of traders, around 57 percent, were still betting the Fed might hike in September. After this report, that bet is dead. There is not a chance the Fed raises into a weakening jobs market, and I would not expect any move before the election. So the Fed is on hold. That part is simple. It is not the interesting part.
What is the yen carry trade?
Here is the mechanism most people miss. Japan has kept interest rates near zero for a very long time. That lets hedge funds and big traders do something clever: borrow money in Japan at almost no cost, convert those yen into dollars, and buy higher-yielding assets, including US stocks. Then they lever up on top of that.
Borrow cheap in one country, earn more in another, and amplify it with leverage. For years this has quietly pushed money into US markets and helped hold them up. Most investors have no idea it is even happening, which is exactly why it is worth understanding.
Why does a cheap yen matter?
The trade works as long as the yen stays weak and Japanese rates stay low. Right now the yen is at a 40-year low against the dollar, which is why you saw the US and Japan quietly coordinate to step in and defend it. When two governments team up to prop up a currency, it tells you the stakes are high. A currency move in Japan is not a far-away story. It is wired directly into the money that has been buying US stocks.
What happens if the carry trade unwinds?
This is the part to understand. If the Bank of Japan raises rates, say after Labor Day, the math on the trade flips. Borrowing yen is no longer free, and the yen strengthens, which means traders who borrowed in yen suddenly owe more. To cover, they sell, and because the trade is levered and global, that selling can cascade into US stocks fast.
This is not hypothetical. It happened in 2024. A carry-trade unwind hit global markets and US stocks dropped hard, then snapped back. The lesson is not to panic, it is to understand that a chunk of this market's support comes from a trade that can reverse quickly.
What else are we watching?
A couple of quieter signals. The phrase “soft landing” has basically vanished from corporate earnings calls, replaced almost entirely by “AI.” Companies that fail to mention AI are getting punished by the market, which tells you where attention and money are flowing right now.
And on the IPO front, an old pattern is returning. Back in the 1980s, companies waited until they were profitable to go public. That discipline faded after 2008, and the share of unprofitable tech IPOs is creeping back up. SpaceX, for example, has real revenue but no profit, and is still eyeing a public offering. When “we do not need profits yet” comes back into fashion, it is worth paying attention.
So what should investors actually do?
Nothing dramatic, which is usually the right answer. First, do not read the weak jobs number as a reason to bail, but do understand the Fed is now on hold. Second, know that the yen carry trade exists and that a Bank of Japan move is the kind of thing that can cause a sharp, fast pullback, so do not be shocked if it happens. Third, stay diversified and keep some cash flexibility, so a carry-trade air pocket becomes an opportunity rather than an emergency.
The goal is not to predict the unwind. It is to not be surprised by it.
Frequently asked questions
What did the August jobs report show?
Non-farm payrolls came in at negative 23,000, and after revisions to May and June the economy lost roughly 103,000 jobs.
Will the Fed raise rates in September?
Almost certainly not. A weakening jobs market takes a hike off the table, and no major move is expected before the election.
What is the yen carry trade?
Traders borrow yen at near-zero rates, convert to dollars, buy higher-yielding assets like US stocks, and often add leverage. It has quietly supported US markets.
Why is the weak yen a risk?
The yen is at a 40-year low, and the US and Japan coordinated to defend it. If Japan raises rates, the carry trade can unwind and force selling in US stocks.
Has this happened before?
Yes. A carry-trade unwind hit global markets in 2024 and US stocks dropped sharply before recovering.
The Bottom Line
The jobs report grabbed the headlines, but the yen carry trade is the story under the story. A weak yen and near-zero Japanese rates have quietly helped hold this market up, and a move by the Bank of Japan could reverse that fast. You do not need to predict it. You need to understand it, stay diversified, and keep your head if it happens. If you want this kind of plain-English read on the market every week, subscribe to The Cents of Things.
Source: per The Cents of Things market review recorded August 7, 2026, the August jobs report showed non-farm payrolls of negative 23,000, and roughly 103,000 jobs lost after downward revisions to May and June.
