How to respond to the Bank of Japan’s interest rate hike: accidentally directly affecting the black swan event of Bitcoin falling below $50,000, please exercise strict risk control.
Japan's stock market has reached levels not seen in 34 years, and the country may soon witness another landmark moment: its central bank may raise interest rates for the first time in 17 years as early as Tuesday.
Rising and positive interest rates in Japan will not reshape the market overnight. But the long-term impact may be far-reaching, especially if the U.S. economic growth experiences a structural decline for some reason, resulting in the weakening of the yield advantage of U.S. assets.
Japan is the largest overseas holder of U.S. Treasuries, a major creditor of overseas loans and a major exporter, and its corporate earnings and stocks have been significantly supported by a cheap yen. If the Bank of Japan raises interest rates and causes more Japanese money to stay at home, this could ultimately affect areas as diverse as U.S. mortgages and infrastructure financing in developing countries.
For much of the past two years, Japan has bucked global monetary trends and maintained an ultra-low interest rate policy.
Now, with most other major central banks on the verge of cutting interest rates, the Bank of Japan is poised to become an outlier again. Domestic media reported over the weekend that the Bank of Japan will end the negative interest rate policy it has implemented since 2016 at its policy committee meetings on Monday and Tuesday.
There is growing evidence that Japan's job market is on increasingly stronger footing after years of stagnant wage growth. The Japan Federation of Trade Unions said last week that unions had received an average pay increase of 5.28% based on the results of the first round of Japan's annual spring wage negotiations. In the entire decade to 2022, the final annual growth rate has never exceeded 2.4%.
This situation is likely not to change in the short term, so the Bank of Japan is likely to be slow to raise interest rates. Over the past few years, the central bank has repeatedly emphasized its reputation for raising interest rates slowly and cautiously. Moreover, while inflation remains high by Japanese standards (2.2% in January), it has cooled from last year's peak.
Japanese bond yields have recovered somewhat but remain significantly lower than those in the United States. U.S. and Japanese 10-year government bonds 3.5 percentage points. That's significantly lower than the 4.2-point gap a few months ago, but still well above the 1.5-point gap three years ago.
Even so, narrowing interest rate differentials - especially if the Fed cuts interest rates later this year, which seems likely - will support the yen. That could dampen concerns about surging Japan
Will support the yen. That could dampen enthusiasm for surging Japanese stocks. Japanese stocks will become more expensive in dollar terms for foreign investors, who have been a big driver of Japan's stock market gains. A stronger yen will also affect the profits of some Japanese companies, especially large exporters.
At the same time, Japan's gradual interest rate hikes may not have much impact on the direction of global capital flows in the short term. But if Japan's return to positive interest rates proves sustainable, things may look different going forward.
For decades, Japanese individuals and companies have been big investors in overseas assets in search of higher yields. For example, Japanese investors hold about $1.1 trillion in U.S. Treasuries and are the largest foreign holders of U.S. Treasuries.
The country's overseas portfolio investments totaled the equivalent of $4.2 trillion at the end of last year, with a large portion coming from Japanese pension funds and insurance companies. They may find that domestic options suddenly become more attractive after the Bank of Japan raises interest rates.
With total overseas assets of approximately $4.2 trillion, Japanese investors have been scouring the world for better returns for as long as most investors can remember. When that starts to change, sooner or later the impact will be felt in almost every corner of the globe.
This article shares personal advice and does not constitute any advertising or investment advice. It is for your reference and reference only.
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