The hedge funds and others borrow cheap (less than 1%)and buy income and other US equities. Everything is fine unless the yen strengthens (fewer yen to buy a dollar)and then the hedge funds bail. They sell everything they have to. Today they even sold gold stocks in spite of gold being up.
Borrowed funds are the bane of the current stock market. The big players take way over half of the NYSE and NASDAQ trades and trade these in over 1 million dollar amounts. They then take computer generated derivatives and, finally, sometimes turn the whole decision making process to a program they place in their computers.
For awhile you could predict the general direction of the market by focusing on 110 yen to the dollar. When it dropped below this or 162 yen to the Euro, things began to happen. The dollar had a remakable severe and quick decline this week. Presently, you only need 103 or so yen to buy a dollar.
All of this can change direction, at least to some degree, once the selling stops. No doubt, hedge funds and other big players are going to be careful using borrowed funds. At least I hope so. When the turn comes there will be considerable short covering and a dramatic thrust to the upside.
Just from what I have read. I have no real expertise in this area.
Say goodbye to the yen carry trade and hello to the dollar carry trade.