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?
Instead of returns from holding financial assets, the losses due to exchange rate fluctuations may outweigh, and the total amount of yen borrowed...