Correction in the dollar-yen was overdue and may be 'healthy' for markets, former ECB chief says

The recent rapid strengthening of the Japanese yen can be seen as an overdue and healthy correction — and it's not time to panic about the wider market impact, the former head of the European Central Bank said Tuesday.

A combination of Japanese monetary policy turning hawkish, geopolitical tensions in the Middle East and disappointing U.S. jobs data rattled markets around the world across Friday and Monday, Jean-Claude Trichet told CNBC's "Squawk Box Europe."

"The three have played their role, in my opinion, in triggering this [U.S. dollar-yen] correction which was nevertheless overdue, because everybody knew that the yen was not in an appropriate position, and the carry trade had been, I would say, very active during a long period of time," Trichet, also formerly the governor of France's central bank, said.

A "correction" is generally defined as a drop in the value of an asset or index by 10% or more, returning it closer to a long-term trend.

A carry trade involves an investor borrowing a currency with low interest rates and reinvesting it in higher-yielding assets elsewhere — taking advantage of that differential to make a financial gain. Investors piled into yen carry trades in recent years, attracted by Japan's low volatility and ultra-loose monetary policy.

But a rapid appreciation in the yen began last Wednesday, when the Bank of Japan raised its benchmark interest rate and set out a plan to taper its bond-buying program.

The U.S. dollar plunged nearly 5% against the yen last week, and lost further ground on Monday — though ticked 0.5% higher Tuesday. Global stock markets meanwhile plunged as "safe haven" assets such as the Swiss franc and U.S. Treasurys were bolstered.

"You can't unwind the biggest carry trade the world