The unwinding of the 'carry trade' is not yet complete, strategists caution.

• Operations where an investor borrows in a low-interest rate currency, like the Japanese yen, and reinvest the proceeds in higher-yielding assets elsewhere are known as carry trades.
• Recently, the foreign exchange strategy has gained popularity among investors, who anticipated the Japanese yen to remain undervalued and for Japanese interest rates to remain low.
• Last week, the carry trade funded by yen began to unwind aggressively, as the Bank of Japan raised interest rates, which strengthened the yen and caused a dramatic sell-off in global markets.

Strategists have warned investors that the unwinding of "carry trades" may still have more room to run, as it is too early to give the all-clear.

Operations where an investor borrows in a low-interest rate currency, like the Japanese yen, and reinvest the proceeds in higher-yielding assets elsewhere are known as carry trades.

Recently, the foreign exchange strategy has gained popularity among investors, who anticipated the Japanese yen to remain undervalued and for Japanese interest rates to remain low.

Last week, the carry trade funded by yen began to unwind aggressively, as the Bank of Japan raised interest rates, which strengthened the yen and caused a dramatic sell-off in global markets.

Richard Kelly, the global strategy head at TD Securities, stated that he would be "extremely reluctant" to declare the end of the carry trade unwind, despite some economists suggesting that the rollback may be mostly finished.

Kelly stated on "Squawk Box Europe" on Monday that she would challenge many of those narratives, as there is no reliable data to determine the value of carry trades.

"If you consider the undervalued yen, there is still a lot that can unwind, which will change the valuations for the next one to two years. This will have spillover effects."

The yen carry trade is difficult to accurately assess, with estimates ranging widely. Some analysts estimate it to be worth as much as $4 trillion, based on Japan's foreign portfolio investments, according to Reuters.

Last week, TS Lombard analysts stated in a research note that investors might require approximately $1.1 trillion to repay the borrowing associated with the yen carry trade.

The 'real' Japan strategy

Kelly advised that if you examine our models, you will see a similar sentiment to the market, indicating that you should buy back into the carry trade by investing in MEX and Brazil, as well as other high-yielding assets. Additionally, you should consider shorting some of the funder currencies.

"I believe there is a structural change. Despite the Bank of Japan's need to tighten, the yen remaining undervalued, and the Fed easing, these interest rate differentials will be affected in the wrong direction," he stated.

"I wouldn't be investing in high-yielding emerging market assets. Instead, I would focus on going long on the yen in a long dollar environment. While this may be the right trade, it is a structural decision rather than a short-term, high-frequency data-driven one."

U.S. inflation figures are eagerly anticipated by market participants, including Kelly, in order to assess the health of the world's largest economy.

The Federal Reserve may start reducing interest rates from next month due to the upcoming release of the U.S. producer price index on Tuesday and the consumer price index on Wednesday.

The sell-off of risk assets last week was partly due to weaker-than-expected U.S. economic data. This led investors to worry that the Fed may not be able to cut interest rates quickly enough to prevent a recession.

According to Jesper Koll, the massive and violent correction that occurred last week was beneficial because it compelled investors to concentrate on the real Japan strategy.

Koll stated that the true Japan strategy is not just a quick carry trade, but rather the advantage of corporate restructuring and the first sustainable growth in real wages. Therefore, it is important to focus on the domestic economy rather than the froth economy that emerged with zero interest rates.

What's next for the yen?

According to analysts at Barclays, it is too early to declare that the carry trades have unwound completely, as systematic selling pressure has not yet been fully exhausted.

Barclays analysts predict that investors will remain cautious in the coming weeks due to limited liquidity and reduced risk allocations. They anticipate that volatility will persist, negatively impacting emerging market carry trades.

They advised against fading in EM rates immediately and to wait for selective opportunities due to the uncertainties surrounding the US economy.

While some economists believe that the immediate disruption from yen-funded carry trades has been played out, not everyone is as concerned about the long-term impact of the carry trade unwind.

According to Jonas Goltermann, deputy chief markets economist at Capital Economics, the recent run of poor data is more likely due to temporary disruption rather than the start of a serious slowdown, which implies that the recent rebound in risky assets and currencies will continue.

According to Goltermann, the immediate disruption caused by the yen carry trade unwind has mostly passed, but he predicts that the yen will maintain its recent gains and likely make more progress in the coming months and into 2025.

— CNBC's Michael Bloom and Dylan Butts contributed to this report.