Just read a good article here on how the Yen affects the U.S. stock market.
In a nutshell
- As the interest rate for Yen is near zero, traders borrow Yen, and convert to other currencies to invest in stocks and bonds, including the U.S. stock market. This is known as a carry trade.
- When the Yen appreciates significantly, or when Japanese interest rates rise, these traders have to unwound their carry trades, and means also selling U.S. stocks funded by the carry trades.
- So Yen appreciates, it is negative for the U.S. stock market. In addition, it is negative for the Japanese stock market because bulk of their companies are export-oriented.
- That’s the reason why right now we see greater correlation between the Nikkei and the S&P.