I found out what really happened.
The bank of japan has raised interest rates last week for the first time in decades, from 0.1% to 0.25%.
This has blown up something called the “yen carry trade” whereby people borrow Japanese yen at near 0 interest rates and then invest that money in treasurys, us corporate bonds, stocks, bitcoin, etc
Since the bank of Japan never raises rates and people figured they’d never be able to due to their debt to gdp being like 200%, people took CRAZY leverage to do this carry trade.
So now that the bank of Japan has raised rates, the yen is appreciating. That means that it now takes more USD to buy yen. Which means that the money they borrowed in yen and converted to USD now takes more USD to pay it back.
This is compounded by the crazy amount of leverage people put on this trade. They are having to liquidate assets to cover their positions and buy yen, which in turn causes the yen to appreciate… which causes the problem to worsen, furthering the cycle.
The best part is, the USA cannot bail them out by cutting interest rates. If the Fed cuts interest rates right now, the USD will further depreciate against the yen, making the problem WORSE.
Japan does not want to cut rates because inflation was starting to run away from them.
So now we see: does the BoJ cut rates and cause the yen to hyperinflate and destroy Japan, or does the rest of the world eat shit?
FYI the yen carry trade is estimated at about 20 trillion USD globally.