US Recession and Japan Rate Hike Shake Crypto and Equity Markets

Fears of a potential US recession have shaken global markets, impacting both cryptocurrencies and equities. The Labor Department released concerning job growth figures after market hours on Friday, indicating a rise in the unemployment rate in July. 

The crypto sector felt the strain as Bitcoin prices dropped, but many analysts believe Japan’s recent monetary policy shifts are the real catalyst behind the market turbulence.

Delayed US rate cuts amplify Crypto concerns

The US labour market added just 114,000 jobs in July, falling short of expectations and raising concerns about the strength of the economic recovery. The unemployment rate increased to 4.3% from 4.1% in June. These numbers and inflation worries have increased speculation about a looming recession. 

The Federal Reserve has maintained a tight monetary policy since 2022, while the Bank of Japan ended July with an interest rate of 0.25%. Crypto analyst Alex Krüger points to these economic concerns as a significant factor in the recent market downturn. On August 5, Bitcoin (BTC) fell below the psychological threshold of $50,000, leading to investor panic. 

Coinglass reported that approximately 277,000 traders liquidated around $1 billion of their holdings within 24 hours. Krüger attributes the market’s weakness more to Japan’s rate hike than the US economic situation, emphasizing that the lack of a rate cut by the Federal Reserve exacerbated the downturn. Krüger stated on X, “A financial crisis mainly driven by a cascade of levered Japanese speculators is a much better alternative than a financial crisis driven by the US entering into recession.”

JPMorgan analysts expect federal rate cuts

Market analysts at JPMorgan predict that the Federal Reserve may cut the policy rate by 50 basis points in September. However, the bank suggests that a 25-basis-point cut could have occurred if the latest payroll data had been available before the Federal Open Market Committee (FOMC) meeting. Further rate cuts are expected in November, with Bloomberg citing a potential 50-basis-point reduction. The anticipation of these changes reflects the market’s uncertainty and the urgent need for economic stability.

The ripple effects of these financial developments have been felt beyond the crypto market. The Nikkei 225 index in Japan experienced its worst day since the 1987 “Black Monday” crash, underscoring the global reach of the current economic challenges. Oil prices dipped to an almost eight-month low on Monday, reflecting fears over the US, the world’s top oil consumer. Goldman Sachs increased the likelihood of a US recession to 25%, while economist Mohamed A. El-Erian believes the probability remains at 35%. Geopolitical tensions in the Middle East are also contributing to market unease.

Fed’s potential actions to stabilize markets

The financial world now eagerly awaits potential actions by the Federal Reserve to stabilize the market. An emergency rate cut could inject much-needed liquidity into the system, providing relief to both equity and crypto markets. Bitcoin and other cryptocurrencies could benefit from such a move as they seek stability amid the broader economic challenges.

The current market volatility highlights the interconnectedness of global economies and the complex factors driving financial trends. As the US grapples with recession fears and Japan adjusts its monetary policy, investors and analysts are closely watching for signs of recovery or further decline. The coming weeks may reveal more about the future trajectory of both traditional and digital assets as policymakers navigate this uncertain landscape.

The post US Recession and Japan Rate Hike Shake Crypto and Equity Markets first appeared on Coinfea.