Sharp drop in global markets triggered by concerns over Bank of Japan rate hike

From Nasdaq: 2024-08-05 10:52:00

Global markets experienced a sharp drop due to concerns surrounding the popular carry trade involving the Bank of Japan. Investors borrowed in yen at low rates to invest in high-growth stocks, but the Bank’s rate hike caused the yen to appreciate. This forced investors to unwind the trade, leading to widespread market turmoil.

The yen’s rise to 150 per dollar post-rate hike from 162 earlier in July has triggered an urgency to unwind the carry trade. Investors face significant losses as the yen’s appreciation increases the amount needed to repay yen-denominated loans. Market volatility is exacerbated by concerns about the U.S. economy and the $4 trillion unwinding.

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Read more at Nasdaq: What Is a Carry Trade, and How Did a Small Rate Hike in Japan Just Trigger a Global Sell-Off?