Interest Rate Changes Ignite Market Reactions

The recent interest rate hike by the Bank of Japan triggered significant market fluctuations, particularly impacting US stocks due to a wave of sell-offs by Asian investors engaged in carry trades. As the yen strengthened against the dollar, the attractiveness of borrowing in yen diminished, forcing investors to liquidate holdings, especially in US technology stocks. This selling spree led to a dramatic decline in major indices, including a notable plunge of over a thousand points in the Dow Jones. The spike in the VIX, a volatility index, reached levels reminiscent of the 2008 financial crisis and the March 2020 pandemic, signaling heightened market fear and unrest, which stands out as an unusual occurrence in stable financial conditions.