The sharp rise in the JPY/USD is causing a massive unwind of Yen carry trade positions and contributing to the sharp decline in US stocks. For those who do not understand how this works, a brief explanation
- Many traders were borrowing Jap Yen (JPY) at low interest rates, converted them to USD and used this to buy US stocks
- Now that the Bank of Japan (BOJ) is raising interest rates, the JPY has strengthened significantly against the USD.
Now, these traders are in big shit. Not only must they pay higher interest for the JPY they borrowed, they are now facing huge forex losses as well. The USD assets they are holding may not be enough to repay the JPY they have borrowed.
3. This is causing a huge unwind of these trade positions. Traders facing big losses and margin calls are selling their US stocks to raise USD, converting back to JPY and paying back their loans.
4. This can lead to more selling pressure on US stocks and even more declines in the short term. Middle east war escalation, US political uncertainty is also adding to the fear and panic.
source: @adamkhoo
Over $2 trillion wiped out from the US stock market so far today.
byu/hardikchavda inwallstreetbets