Keep in mind BLSH (ah what a symbol, lol) that these strats aren't micro. IOW's a 5yr carry has twenty points of cushion. It's just a de facto short ATM 5yr call on the Yen at a premium of 20. Not much different than selling Mch 2012 ES. If there was such an animal it would be at a price today of like 1800. Would you assume the S&P to be under that level in 5 years? Hard to say eh? But it does give one a great deal of breathing room.
According to a currency specialist interviewed by Bloomberg yesterday, the japanese fiscal year ends in March and JPN pulls their currency back in every year at this time causing some unwinding of the carry trade. The yen should depreciate further toward the end of the month causing the carry trade to resume back to normal.
If a hedge fund had borrowed yen to pay for something which gained 3% that year, for example, but the yen rose 5%, would they have to disclose the current loss taking into account the exchange rate difference, or could they just say they gained 2.5% from the spread since they haven't closed the position yet, and say nothing of their unrealized potential loss?
They would be using mark to market accounting and would report the unrealized loss as though it were realized.