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

For over a year, Japan has been the darling of the global market, with the depreciation of the yen driving the stock market to historical highs and reigniting inflation after decades of deflation. However, this situation has undergone a revolutionary change this week, with the Bank of Japan's interest rate hike pushing up the yen. The Nikkei 225 index fell by more than 12% on Monday, marking the largest drop since 1987, but then rebounded by 10% the next day.

In response to this drastic turmoil, JPMorgan Chase warned that there might be an unknown "black swan" that the market is not aware of, otherwise, such a scale of selling in Japanese stocks would not generally occur without the impact of random events such as war, pandemic, natural disasters, or financial crises.

What unknown "black swan" might emerge behind the brutal Japanese stock market, and what impacts will it bring?

Firstly, the yen's rebound has disrupted one of the most profitable market strategies this year, the "carry trade." The yen's rebound has triggered profit-taking and closing positions in these trades, further exacerbating the yen's appreciation. Wei Li, BlackRock's Global Chief Investment Strategist, said:

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Compared to the rapid closing of carry trades in the past, Japan's massive reaction this time indicates that there are factors within Japan that are more worrying than economic recession. If this situation continues, it may have an impact on the global economy.

Such drastic fluctuations could also have far-reaching effects on Japanese politics and households. Market turmoil may affect consumer confidence and Japan's process of escaping deflation. Yutaka Suzuki, Chief Foreign Exchange Strategist at Sumitomo Mitsui Banking Corporation, said:

The risk is that consumption and investment will be suppressed due to increased market uncertainty. If this situation continues, it may affect corporate behavior and households.

What is even more troubling for investors is that BOJ Deputy Governor Naohiro Yamaguchi stated three times in a week that as long as the market is unstable, there will be no interest rate hike, leading to a further depreciation of the yen by more than 2%. This indirectly admits that the bank's interest rate hike last week was a "disastrous" policy mistake. Takuji Aida, Chief Economist at Credit Agricole, said:

Some people believe that the actions of the Bank of Japan were a mistake and influenced by political pressure. In recent weeks, some well-known politicians have openly criticized the weakening of the yen. This could jeopardize the relationship between the Japanese government and the central bank and affect Prime Minister Fumio Kishida's efforts to run for the leadership of Japan's ruling party next month.In this great upheaval, everything is being overturned, and the only strategy is to abandon the strategy that has been used all along.

Stephen Miller, a consultant at Grant Samuel Funds and former BlackRock fund manager, said:

There is no doubt that this is a completely new territory for the market. As the Bank of Japan seems determined to break away from the zero or negative interest rate policy that has been in place for many years, profound introspection is taking place in all aspects - stocks, bonds, yen, credit, everything is like this. The only strategy now is to discard the strategy you have been using for decades.