Many people are talking about tomorrow's Bank of Japan meeting, and they are saying that Japan might raise interest rates, but most are just following the crowd, either treating it as ordinary news or completely misunderstanding what a rate hike in Japan actually means.
Before the interest rate hike is finalized, I want to have a good discussion about this matter with everyone and share a bit of my personal perspective. Those who are familiar with me know that I usually don't pay much attention to news, but this time the interest rate hike in Japan is really not ordinary news. Its magnitude can completely be compared to the Federal Reserve's rate cuts, and in my view, its impact is much greater than the Fed's rate cuts.
All news is always most important the first and last time. The reason is simple, these two points have the largest market fluctuations. You can look back at the recent US rate cuts; aren't they becoming less and less eventful? Therefore, it can be confirmed that if Japan really raises interest rates this time, the market fluctuations triggered will likely far exceed those of the US rate cuts in December.
So how will Japan's interest rate hike actually affect the market? Let me say in advance that even if Japan remains static tomorrow, interest rate hikes will definitely come in the coming months. If the yen starts raising rates, the interest rate could jump directly to 0.75%—a level that hasn't been seen in Japan for the past 30 years.
Looking back at Japan's previous two rate hikes, the subsequent chain reactions can be described as astonishing. The first directly became the terminator of the 2000 internet bubble; the second became the catalyst for the 2008 US subprime crisis.
At this point, what kind of storm will Japan's interest rate hike stir up? Why can changes in the yen's interest rate create such a huge ripple in the global financial market? The core reason is that the yen has long maintained a zero or even negative interest rate, simply put, borrowing yen is almost costless. This has led many institutions and investors around the world to use yen borrowing as leverage for various investments and trades.
Once Japan raises interest rates, the cost of yen carry trades will soar, which will inevitably trigger a wave of selling in gold, stocks, bonds, and cryptocurrencies. As for how crazy this sell-off will be, no one can give an answer right now. But history has proven that the last two interest rate hikes in Japan triggered panic selling in the market and black swan events, and this is something you must take seriously.
The current operational thinking is very clear: hold your short positions because the bearish momentum at the daily level has not yet been fully released.
