The post Here’s an ELI5 on on How Japan Sent Global Markets Tumbling appeared on BitcoinEthereumNews.com.

The Bank of Japan’s 0.25% hike surprised investors and caused a domino effect of massive proportions. 0.25% – just a blip in crypto terms, but enough to cause a domino effect that’s rippling and causing havoc across global markets. So, what exactly is happening? The Bank of Japan made the surprise decision to raise interest by 0.25% on July 31. It was the country’s second departure from zero since 2007, sending financial markets into turmoil last Friday, with assets selling off today as if it was another Black Monday. Japan’s Nikkei 225 stock index is experiencing its worst day since 1987, while the Nasdaq lost 1,000 points for the first time in history, and Bitcoin briefly dropped below $50,000, the lowest since February 2024. Meanwhile the Magnificent Seven, as the top seven technology companies are sometimes referred to, and which include Apple, Meta, Microsoft, NVIDIA, Amazon, Google, and Tesla, have collectively lost more than $750 billion. Greg Mandini, Director of Derivatives for Amberdata, said he has been following the economic situation in Japan for nearly two decades, and said what the world is witnessing is a “countertrade move.” A move so volatile, he added, has 1 in 5,000 odds. A Bet On Japan’s Zero-Interest Rate Japan’s situation involves carry trades and leveraged unwinding. A carry trade involves borrowing and selling one thing, then taking that cash and buying something else in hopes of earning more from the asset purchase than it costs to borrow the other one. The strategy works if currency values don’t change much–which is exactly what has happened in this case. Traders will usually purchase low-interest currency to then pick up high-yield instruments elsewhere, a practice that had become increasingly popular over the years with the Yen having such low interest rates. With interest rates at zero,…

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Filed under: News - @ August 6, 2024 4:20 am