Bearish Turn: Focus on the Potential Risks of the Bank of Japan's Rate Hike
Recently, I have turned bearish on the market, with a core focus on just one thing: the Bank of Japan. On Thursday, the Bank of Japan will announce its interest rate decision. Although many in the market haven't paid much attention, the recent decline in Bitcoin has already reflected the expectation that "Japan may raise interest rates". This is not just about Bitcoin's downturn; even the Nikkei index has seen declines during the same period, indicating that the same funding chain is contracting in sync. #BankOfJapanInterestRateHike #BTC
What the market is truly worried about is not whether "they will raise that little bit of interest," but whether yen carry trades will be forced to unwind. For the past few years, the yen has been close to zero interest rates, and even negative rates, making it the cheapest financing tool globally. The funding path is straightforward: borrow yen, exchange for dollars, and then invest in U.S. stocks, tech stocks, or even high-volatility assets like Bitcoin.
This arbitrage operation has one prerequisite — the yen must continue to weaken. Once the Bank of Japan signals a rate hike, or merely shifts to a hawkish stance, the yen will strengthen, borrowing costs will rise, and funds will immediately face burdens, with the only options being to cut positions and repay debts.
The contraction of this arbitrage chain will not only affect the yen; it will directly pressure the prices of high-risk assets such as U.S. stocks, tech stocks, and Bitcoin. The market is therefore concerned that we may see a repeat of the chain reaction in July and August 2024 — a cross-market synchronized decline.
So, while I remain optimistic about Bitcoin's long-term value, the safety of risk assets is difficult to guarantee before the Bank of Japan's interest rate hike is fully implemented. The macro environment is changing extremely rapidly, and if there's a misstep, it may be too late to retreat.
