During this week's "historic" financial storm, Japan is undoubtedly the center of the storm. In less than a week, Japan completely subverted global market and economic expectations.

For over a year, Japan had been the darling of the global market, with the depreciation of the yen pushing the stock market to historic highs and reigniting inflation after decades of deflation. However, this situation changed dramatically this week as Bank of Japan's interest rate hike pushed up the yen, causing the Nikkei 225 index to drop more than 12% on Monday, marking its largest decline since 1987, but it rebounded by 10% on the next day.

JPMorgan warned of the current severe turbulence and said that there may still be "black swans" in the market that are unknown at present. Otherwise, without the impact of accidental events such as war, epidemics, natural disasters, or financial crises, such a massive sell-off as the one in the Japanese stock market these days would not usually occur.

What unknown "black swans" are behind the disastrous performance of the Japanese stock market, and what effects will they bring?

First of all, the rebound of the yen has damaged one of the most profitable market strategies this year - "arbitrage trading", which led to profit-taking and liquidating positions, further exacerbating the appreciation of the yen. BlackRock's Global Chief investment Strategist, Wei Li said,

As the super large-scale reaction in Japan this time shows, there may be more worrying factors in the Japanese domestic market than economic recession. If this situation continues, it may have an impact on the rest of the world.

Such violent fluctuations may also have profound effects on Japanese politics and families, and the market turmoil may affect consumer confidence and Japan's process of overcoming deflation. Yufumi Suzuki, Chief Forex Strategist at Sumitomo Mitsui Banking Corporation, said,

The risk is that the increase in market uncertainty will inhibit consumption and investment. If this situation continues, it may affect corporate behavior and households.

What is more troubling for investors is that BOJ Deputy Governor, Masayoshi Amamiya, said on Wednesday that they would not hike rates as long as the market is unstable, causing the yen to depreciate again by more than 2%. This indirectly acknowledges that last week's interest rate hike was a "disastrous" policy error. Takuji Aida, Chief Economist at French Agricultural Credit Bank, said,

Some people think that the BOJ's action was a mistake, and it was influenced by political pressure. In recent weeks, some well-known politicians have openly criticized the weakening of the yen. This could endanger the relationship between the Japanese government and the central bank, and affect Prime Minister Fumio Kishida's efforts to run for leader of Japan's ruling party next month.

In this major turmoil, everything is being overturned, and the only strategy is to abandon the strategy that has been used for decades.

Stephen Miller, advisor of Grant Samuel Funds and former BlackRock Fund Manager, said,

Undoubtedly, this is a new field for the market. As the Bank of Japan seems determined to get rid of years of zero or negative interest rate policies, everyone is now reflecting deeply - stocks, bonds, yen, credit, everything. The only strategy now is to abandon the strategies that you have been using for decades.