Brazilian assets were a favorite target of the "carry trade." Driven by cheap global liquidity courtesy of the Bank of Japan's multi-decade, ultra-stimulative monetary policy, investors would borrow in yen and invest in assets with higher rates of return. This included Brazilian bonds, with their globally high yields, as well as the nation's equities.

The Bank of Japan's surprise decision to raise rates to 0.25% on July 31 disrupted this situation, exacerbating a global selloff in assets from US tech stocks to cryptocurrencies.

Our first chart demonstrates the impact Japan's actions had on fund flows into Brazilian bonds and equities, tapping the power of data from our partners at EPFR. The recent net inflow to bond funds was soon cut in half.

There have also been domestic factors at play in Brazil, which especially impacted equities. Our chart begins on June 19, the day the nation's central bank abandoned a year-long dovish stance -- keeping rates unchanged amid concerns about inflation. The Japanese surprise exacerbated the equity outflows that were already taking place.

We can dig deeper into Brazilian stocks with the help of Exchange Data International (EDI), whose equity indices are available on the CEIC platform. As the second chart shows, basic materials and agribusiness shares saw the steepest declines since July 31.

Amid this turmoil in global markets, the Brazilian real depreciated to USD/BRL 5.76 by Aug. 5, a three-year trough.

Will the Brazilian central bank follow its Japanese counterpart in implementing a surprise rate hike? On Aug. 6, it said it would not hesitate to increase interest rates if necessary, stemming the currency's decline.

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