Technology Trend: Pause or Progress?

At its meeting on July 31, 2024, the Bank of Japan (BoJ) announced a key policy shift by raising its benchmark interest rate from the 0–0.1% range to 0.25%, and signaled a reduction in its government bond purchases. While noting that real interest rates remain at low levels, the BoJ emphasized its intention to continue adjusting monetary accommodation and raise interest rates further as necessary.

Following this announcement, the USD/JPY pair experienced a notable decline. On the same day, the U.S. non-farm payrolls data, closely watched by the Federal Reserve for labor market signals, came in well below expectations, with only 114,000 new jobs added in July.

These developments heightened global recession fears. Both the S&P 500 index and the Nasdaq Composite, which is heavily weighted with technology stocks, recorded losses. Meanwhile, the VIX Index—a widely used gauge of market volatility—spiked sharply, reflecting rising uncertainty and investor anxiety. In fact, the VIX posted its largest single-day gain since the COVID-19 pandemic in 2020.

To provide some context: historically, global investors have taken advantage of low borrowing costs in Japanese yen (JPY) by borrowing in JPY and investing in USD-denominated assets—a strategy known as the "carry trade." However, the JPY’s appreciation since mid-July, followed by the BoJ's rate hike, increased JPY borrowing costs, leading to foreign exchange losses on these positions. As fund managers sought to unwind positions, thin market liquiditycontributed to sharp asset price declines.

The Nikkei 225 Index closed with a staggering 17.0% drop on Monday, July 5, marking the largest single-day decline since 1987. This financial "tsunami" in East Asia quickly rippled through to European and U.S. markets. Amidst earnings season, the downward pressure on prices was felt more acutely in the U.S., where companies were actively releasing quarterly reports.

Investor sentiment toward technology stocks took a negative turn, especially following corporate earnings releases and downward revisions in forward guidance for the remainder of 2024. Many investors, who had significantly increased exposure to the technology theme over the past year, rushed to take profits. This move quickly escalated into panic selling, resulting in a more than 20.0% decline in the Nasdaq 100 Technology Index over the past month.

At BV Portföy, we maintain a long-term positive outlook on the technology sector. While short-term corrections are to be expected within any long-term trend, we view these pullbacks as natural and healthy. The fact that technology companies continue to demonstrate strong growth trajectories remains a key driver supporting our confidence in the continuation of this long-term trend.