LET ME EXPLAIN WHY THIS IS HAPPENING:
https://www.cnbc.com/2024/08/02/carry-trade-how-japans-yen-could-be-ripping-through-us-stocks.htmlYen carry trade is FUCKED.
In 2010, the Bank of Japan reduced its headline interest rates to zero:
https://tradingeconomics.com/japan/interest-rateFrom early 2016 to the beginning of this year, they were actually below zero.
This has allowed individuals and institutions to borrow trillions of USD worth of yen, convert it to dollars, and buy assets (stocks ect.) They owe the debt in yen with extremely low (or possibly negative) interest rates. It's free money! Estimates vary hugely, but I've seen guesses of around 20-100 TRILLION FUCKING DOLLARS entering global markets from this inflow of "free" money.
But wait.
Then inflation got bad in Japan.
Bank of Japan raised rates to 0.25% a few days ago.
This caused the yen to rapidly strengthen.
Now the yen-denominated debt is very very toxic. Institutions that borrowed yen to buy dollars (or other national currencies) and then stocks, bonds, ect. under the assumption that yen only goes down are forced to sell as the yen appreciates.
An especially interesting scenario: let's say markets continue crashing badly and the US Federal Reserve does an emergency rate cut in response. That normally helps, right?
Usually, yes.
But this time a US rate cut would almost certainly further strengthen the yen against the dollar, causing this cycle to exacerbate even further.
>tldrNO MORE FREE MONEY THE JAPANESE ARE CRASHING GLOBAL MARKETS
WITH NO SURVIVORS
