The main reason for the global sell-off is linked to the Japanese Yen, not the Israel-Iran conflict. Here's the sequence of events:

1. Two weeks ago, the Japanese Yen was trading at 165 Yen per 1 USD (i.e., 1 USD = 165 Yen).

2. For over 30 years, Japan maintained zero interest rates, even on loans.

3. Many organizations, funds, and hedge funds borrowed large amounts from Japan and invested in US markets, benefiting from zero interest rates and the appreciating dollar.

4. Most hedge funds shorted the Yen to hedge their positions, similar to selling call options for easy profits.

5. This strategy worked for years, making Japan the largest investor in US markets due to its zero-interest loans.

6. Last week, the Japan Central Bank (JCB) raised interest rates by 25 basis points.

7. Zero interest loans now have additional costs, prompting funds to sell off US investments to repay loans.

8. The Yen appreciated against the dollar, reaching 145 Yen per 1 USD in just two days.

9. Those who shorted the Yen had to cover their positions due to the significant appreciation, causing volatility.

10. A loan taken when 1 USD = 165 Yen now translates to a cross-currency loss of 13% as the exchange rate shifted to 145 Yen per 1 USD.

In summary, the global sell-off is driven by changes in Japanese monetary policy and resulting market reactions, not geopolitical tensions.

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