Don't panic! Japan's interest rate hike is not a 'financial nuclear bomb'; three reasons explain the truth!
First, this rate hike (to about 0.5%) is already the third adjustment by the Bank of Japan since ending negative interest rates, not the first time. If the market really wanted to panic, it should have reacted back in March last year when the first rate hike occurred. Second, with Japan's current interest rate at about 0.5%, the interest rate differential with the U.S. (5.25%-5.5%) is still close to 5 percentage points, and the arbitrage space remains significant, so there is no urgent reason for capital to withdraw completely. Third, according to most market estimates, the total scale of global yen arbitrage trading may be in the hundreds of billions of dollars rather than trillions, which has a relatively limited impact compared to the size of the global financial market.
From a historical performance perspective, during Japan's previous rate hikes, the market did not show a consistent large drop:
March 19, 2024 (end of negative interest rates): U.S. stocks rose slightly that day, Bitcoin fell during the day but quickly recovered the next day.
July 31, 2024 (rate hike to about 0.25%): U.S. stocks quickly returned to an upward trend after a short-term fluctuation, and Bitcoin's trend was similar.
January 24, 2025 (rate hike to about 0.5%): The market reacted calmly at that time, and subsequent declines were mainly influenced by other macro factors.
It can be seen that Japan's interest rate hike itself has not become a decisive factor in dominating market trends. The current market tension is more about the excessive interpretation of news at an emotional level. I believe that for the monetary policy adjustment of an economy that is no longer one of the top three in the world, we do not need to overemphasize its impact. The key is still to look at the movements of more core economies and the logic of the market itself. I suggest everyone stay calm, observe the data more, and be less swayed by emotions.
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