What are the factors that contribute to the decline in stock prices?

As a result of Governor Ueda's hawkish press conference, not only did the Nikkei average plummet, but it also triggered a global stock market crash.

Many people might wonder if the Bank of Japan has such influence as to cause stock market crashes worldwide.

In countries with high interest rates like the USA, if you try to directly source US dollars, you will need to pay high interest rates.

However, in a country like japanyou can source Japanese yen at low interest rates.Therefore, hedge funds and institutions utilize japan's short-term financial markets to source Japanese yen at low interest rates.

They convert the sourced Japanese yen into dollars and invest in risk assets such as US stocks to build up returns.Naturally, these trades contribute to strengthening the US dollar and weakening the Japanese yen. One of the main factors that led to the USD/JPY rising to 162 yen was the existence of this carry trade. That's why the interest rate differential between japan and the USA was crucial.

However, like the recent Bank of japan

However, like the Bank of Japan this time,Declaration of raising interest rates in Japan & sudden event of sharp depreciation of the dollar and strengthening of the yen occurred.What would happen if this were to occur?

The situation would turn into one where losses due to exchange rate exceed the returns from financial assets held, falling below the total amount of yen borrowed.

In that case, the inability to repay in Japan's short-term financial markets triggers a reversal of the previous trend.

In other words, selling risk assets such as stocks that were purchased for dollars, converting them into dollars, and then converting dollars into yen to repay, would lead to a further acceleration of the existing trend of yen appreciation and dollar depreciation, as well as significant declines in stocks.