The recent downturn in the market has only one major factor, that is, the decision by the Japanese government to introduce a 0.25% interest rate. Rest of factors like wars, US government selling 30K BTC etc are insignificant factors. Here's a detailed breakdown of why this decision of Japanese government has such an impact:
1. Carry Trade: Japan has been a central hub for the carry trade due to its historically low interest rates. Investors borrow money at low or zero interest rates in Japan and invest in higher-yielding assets elsewhere. This influx of cheap capital has fueled investments in global markets, including stocks and bonds.
2. Sudden Shift: Introducing a 0.25% interest rate, while still relatively low, marks a shift from the zero-interest-rate policy. This change affects the dynamics of the carry trade, making it slightly more expensive to borrow money in Japan. Consequently, investors may become more risk-averse, preferring safer investments over high-risk ones.
3.Reduction in Liquidity: The increase in interest rates reduces the availability of cheap money for investment, leading to a decrease in overall market liquidity. With less liquidity, markets can become more volatile, and prices can fall as investors withdraw funds.
