8 years of trading veteran analysis: Why did the interest rate hike by the yen cause a sharp drop in NASDAQ futures during the night session?
Tonight, NASDAQ futures plummeted, and the main trigger was actually the interest rate hike by the Bank of Japan—after 8 years in the market, I can easily see that behind this is the logic of capital repatriation from cross-currency carry trades.
In the past year, the most classic arbitrage strategy in the market has been 'borrowing yen to buy dollar assets': the yen interest rate has been low for a long time, making borrowing costs extremely low. After converting to dollars, one can invest in high-yield assets such as one-year U.S. deposits and short-term bonds, steadily earning a 4-5 point interest spread. As long as the yen does not appreciate, it is basically a risk-free arbitrage.
This is similar to the logic many people used to exchange renminbi for dollars to make fixed-term investments: if the renminbi depreciates in the future, one can earn both interest and exchange profit; but once the renminbi appreciates by more than 5%, the interest is completely eaten away, and arbitrage becomes a losing business. Therefore, as long as expectations reverse, capital will switch from dollars back to renminbi, and the currency exchange process itself will further push up the renminbi exchange rate.
Returning to the current yen interest rate hike event: once Japan starts raising interest rates, the expectation of yen appreciation will immediately rise, and the previous carry trades will reverse—global capital will withdraw from dollar assets to exchange back for yen to repay loans. This back-and-forth leads to a significant outflow of capital from U.S. stocks, U.S. bonds, and other dollar assets, putting natural pressure on NASDAQ futures; at the same time, the capital repatriation boosts the yen, and since the yen has a significant weight in the dollar index, the dollar index naturally weakens as a result.
$BTC $ETH $SOL #加密市场观察
Tonight, NASDAQ futures plummeted, and the main trigger was actually the interest rate hike by the Bank of Japan—after 8 years in the market, I can easily see that behind this is the logic of capital repatriation from cross-currency carry trades.
In the past year, the most classic arbitrage strategy in the market has been 'borrowing yen to buy dollar assets': the yen interest rate has been low for a long time, making borrowing costs extremely low. After converting to dollars, one can invest in high-yield assets such as one-year U.S. deposits and short-term bonds, steadily earning a 4-5 point interest spread. As long as the yen does not appreciate, it is basically a risk-free arbitrage.
This is similar to the logic many people used to exchange renminbi for dollars to make fixed-term investments: if the renminbi depreciates in the future, one can earn both interest and exchange profit; but once the renminbi appreciates by more than 5%, the interest is completely eaten away, and arbitrage becomes a losing business. Therefore, as long as expectations reverse, capital will switch from dollars back to renminbi, and the currency exchange process itself will further push up the renminbi exchange rate.
Returning to the current yen interest rate hike event: once Japan starts raising interest rates, the expectation of yen appreciation will immediately rise, and the previous carry trades will reverse—global capital will withdraw from dollar assets to exchange back for yen to repay loans. This back-and-forth leads to a significant outflow of capital from U.S. stocks, U.S. bonds, and other dollar assets, putting natural pressure on NASDAQ futures; at the same time, the capital repatriation boosts the yen, and since the yen has a significant weight in the dollar index, the dollar index naturally weakens as a result.
$BTC $ETH $SOL #加密市场观察