International Finance Manager Breaks Down Japanese Stock Market Crash and Its Impact on the U.S.
A sharp drop in Japan's stock market has everyone wondering how it might affect the U.S. market. Some experts say it might even lead to a drop in interest rates soon.
What's Happening?
On Monday, Japan's stock market saw its biggest drop since 1987. Though it bounced back by Tuesday, people around the world took notice.
Pete Tibbles, an expert from BOK Financial, explained more about this event and what it could mean for us in the U.S.
Why Did This Happen?
Tibbles says that after COVID-19, central banks (which control a country's money and banks) raised their interest rates to manage inflation. But Japan didn't do this, and many people borrowed money there because the interest rates were low or even zero. They took advantage of this to invest in other markets—a practice known as a carry trade.
However, Japan has now started to raise its interest rates, ending their ultra-loose monetary policy (meaning they were previously making borrowing money very easy and cheap).
What Does This Mean for the U.S.?
Tibbles believes this change in Japan's policy might make the Federal Reserve (the U.S. central bank) think about cutting (lowering) interest rates more swiftly. He advises people who invest in stocks to stay calm and keep their investments diversified (spread out in different areas to reduce risk).
"If you have a plan and you're already invested, then stick to it," says Tibbles. "Days like this can be scary, but they're part of the normal ups and downs of the stock market."
When Might Rates Drop?
Tibbles predicts that the Federal Reserve could cut interest rates in September. He thinks the initial rate cut might be 25 basis points (which is 0.25%), but it could go up to 50 basis points (0.50%) depending on the economic data available at that time.
Will This Affect Politics?
Tibbles doesn't think these market changes will significantly impact political races. "Candidates might talk about the financial markets, but historically, these events don’t have a long-term effect on politics," he says.
Impact on Local Businesses
Lowering interest rates could mean good news for businesses. In Oklahoma, for instance, lower rates might lead businesses to invest more and hire new employees. "Lower rates will help companies across the U.S., including here in Oklahoma," Tibbles states.
Conclusion
In simple terms, a change in Japan's money policies is causing ripples that might lead to the U.S. lowering its own interest rates. For now, the best advice for investors is to stay put and keep their investments varied. Lower rates could also mean more investments and job opportunities, especially for local businesses.
