there are many reasons for a stick market to rise. in the school of pipsology they focus on currencies as learning material.
currencies lose value when a central bank lowers interest rates or stats a buyout program (Quantative easening) (one among many reasons why a currency could lose value- others not included in this text)
lower interest rates lead to lover yields in government bonds. investors start shifting their money away from bonds into more risky assets (stocks). lower interest rates aswell leads investirs to draw out money from the base currency in which the lower interest rates are and ibvest it into currencies that yield higher interest rates (one of many reasons for this is to buy bonds of the country with higher interest rates) the side effect is the deevaluation of the currency.
the explanation is simply because stocks yield more profits -in low interest times- than secure bonds and other assets connected to interest rates and the shift away from those (mostly into stocks and other countries securities) happens when interest rates get lowered and that means the base currency loses in value.
it doesnt apply only to usd and jpy. but jpy is one of the big 3 reserve currencies and japan is having a ultra low interest rate policy since 25 years (0% interest rates) while the interest rate of the FED varied from 0.5 to over 10% in the last 25 years. BoJ is famous for its huge QE programms and low interest rates. they in fact started with this tactic 25 years ago and other central banks started copying it in and after the crisis of 2008/2009.
a lot of swap contracts are based on jpy exactly because of this fact. jpy having 0% interest rate while usd having for example 7% then it pays off to get credits based on jpy and with that money buy usd and with that usd you get buying government bonds in usa or elsewhere, or stocks or whatever pays more dividend/interest than 0%.
so it basically means that if a countries stock market is rising, i can then expect the currency of that country to depreciate.
and if a countries stock market is crashing, then i can expect that the currency of that country appreciate.
it’s little weird to think like this, because i don’t think it’s this simple.
I mean if economy looks good in a country, then it means companies are making profit and people are spending. If companies are making profits then it means that stock prices increases. And since the economy is good then people would come in and invest in that country, which means that the currency will be demanded leading to increased in value.
but according to what we said above, it doesnt work like this.
because if stock market is dropping, then the companies are not doing so well in profits and maybe have to fire people. leading to less spending, less jobs and worse economy. making the currency drop in value
no. neither did i say that nor did i imply that. and if school is explaining it this simple then the school doesnt have its fact straight.
i tried to explain you the last 10 years situation onto why stock market and currencies are correlated negatively. that doesnt mean its the standard. my explanation was the reasoning behind the sentences you found in babypips school.