As a result of President Ueda's hawkish press conference, not only did the Nikkei average collapse, but it also triggered a stock market crash worldwide.
Many people may have thought that the Bank of Japan has enough influence to cause a stock market crash worldwide.
In countries with high interest rates such as the USA, if you try to directly obtain US dollars, you need to pay high interest rates.
However, in a country like JapanIn countries with low interest rates, you can procure Japanese yen at low interest rates.Therefore, hedge funds and institutions utilize Japan's short-term financial market to procure Japanese yen at low interest rates.
They convert the procured Japanese yen into dollars and invest in risk assets such as USA stocks to accumulate returns.Naturally, this trade will contribute to strengthening the dollar and weakening the yen. One of the main reasons the USD/JPY rose to 162 yen was the existence of this carry trade. That's why the interest rate differential between Japan and the USA was crucial.
Of course, this trade will contribute to strengthening the dollar and weakening the yen. One of the main reasons the USD/JPY rose 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 Bank of Japan this time,declaring to raise interest rates on the Japanese yen & sparking a sudden dollar depreciation and yen appreciation eventWhat would happen if this occurred?
Instead of returns from holding financial assets, the losses due to exchange rate fluctuations may outweigh, and the total amount of yen borrowed...