Global markets are starting the week with a significant downturn, largely influenced by the Bank of Japan’s recent decision to increase interest rates.
Following the announcement to raise rates to 0.25%, Japan’s Nikkei 225 Index faced its most challenging day since March 2020, plunging by 5.9%. Subsequently, on Monday, the Nikkei suffered an unprecedented drop of 12.6%. Trading was interrupted multiple times across the Nikkei, Korea’s KOSPI, Turkey’s Borsa, and Robinhood, the world’s leading retail trading platform.
In parallel, the cryptocurrency sector has also been severely impacted. According to data aggregator Coinglass, liquidations exceeding $1.22 billion have occurred, predominantly affecting long positions in Bitcoin (BTC) and Ethereum (ETH).
The full extent of the damage is still unfolding, with speculation that one or more major players in the market may have faced significant losses due to the recent upheaval. However, in a conversation with CNBC on Monday, Fundstrat’s Tom Lee characterized the turmoil as more of a “short and scary” phenomenon rather than the onset of a prolonged decline.
Lee pointed to the Volatility Index (VIX)—a widely used measure of anticipated stock market volatility—as a key indicator for the immediate future. He believes that the uncertainty originating from Japan should not have a lasting impact on U.S. markets. “You need to monitor the VIX closely; when it reaches its peak and begins to decline, recovery can be swift. Much of this depends on whether financial conditions in the U.S. start to tighten, which could lead to market stagnation. However, with falling interest rates and consumers remaining in relatively good shape, I suspect that on the other side of this, we might be facing a growth scare.”
He added, “The 2-Year yield indicates that the Fed may be lagging since it has declined further. This appears to be primarily due to the unexpected rate hike from Japan and its ripple effects. If this is the main catalyst for the market’s reaction, it may be tumultuous, but for the U.S. economy, it’s not necessarily bad news. I believe we can recover from this.”
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Disclaimer: The views shared in The Daily Hodl are not to be considered financial advice. Investors should conduct their own research before engaging in high-risk investments in Bitcoin, cryptocurrencies, or digital assets. Please be aware that all transfers and trades are undertaken at your own risk, and any losses incurred are your responsibility. The Daily Hodl does not endorse the buying or selling of any cryptocurrencies or digital assets, nor does it serve as an investment advisor. Additionally, The Daily Hodl participates in affiliate marketing.
Featured Image: Shutterstock/Olivier Le Moal
