As every regard knows, Japan’s central bank recently raised interest rates from 0%-0.1% to 0.25%. Before, a bunch of highly regarded companies took out loans in japan to invest in higher return securities like us stocks, but this interest rate hike caused an increase in the yen’s strength against the dollar, so the dollar value of the loans taken out increased, while the values of the securities invested in with the debt did not. E.g. If you took out a 10 billion Yen loan in June, you would have had 65 million dollars to play around with. Now, you’d have to spend 70 million dollars to repay the loan.
This caused smart companies to liquidate their positions as they predicted the current price action, causing the markets to slump. However, this fucked shit up for the other regarded companies, as now they needed to liquidate even harder to cover their loans.
Everyone converting their dollars to yen increased the demand for yen, increasing its price even more, continuing the cycle.
So, how will this affect the markets this week? When enough yen-carry trades stop, the stock market fall will slow, and potentially recover. But Japan still has incredibly low interest rates, so the carry-trade is still incredibly lucrative. More importantly, if the yen has a correction and weakens, carry trades can profit even more. Thanks to this likely greed, I predict that the markets will keep dropping for a few days, before violently rebounding, as some of the $6 trillion is taken out of money market funds, and invested into a very cheap stock market.