⏰A sudden strong earthquake, can the Bank of Japan still press the interest rate hike button?
💥As the world closely watches the Federal Reserve's 'hawkish rate cut' stance, a magnitude 7.6 earthquake in Japan has diverted half of the market's attention. This earthquake not only triggered a tsunami warning but also directly impacted the foreign exchange market, creating even more uncertainty in a week already filled with complicated global central bank decisions.
The yen fell in response, and the interest rate hike plan faced unexpected changes.
The market's reaction is the most direct. After the earthquake occurred, the dollar against the yen rose sharply, once reaching around 155.97. Behind this is investors urgently reassessing the Bank of Japan's policy path.
Just last week, the market widely anticipated that the Bank of Japan would implement a much-watched interest rate hike at the meeting on December 18-19. However, this sudden natural disaster has cast doubt on everything. Multiple analyses indicate that if the economic losses caused by the disaster expand, the Bank of Japan may be forced to postpone its planned interest rate hikes and shift its policy focus to post-disaster reconstruction and economic support. For the Bank of Japan, which has been seeking to normalize monetary policy, this is undoubtedly an unexpected disruption.
What does this mean for the global market?
As one of the world's major liquidity-exporting countries, if Japan's monetary policy shifts to delay tightening, it will have spillover effects:
1. Yen carry trades may get a breather, potentially helping to stabilize global risk asset sentiment in the short term.
2. The market needs to reassess the economic and policy outlook for the Asia-Pacific region, with uncertainty particularly pronounced on the eve of the Federal Reserve's meeting.
In summary
This week, the market's nerves need to focus on two fronts: one is how the Federal Reserve will set the tone for 'rate cuts', and the other is whether this strong earthquake will truly 'collapse' the Bank of Japan's interest rate hike timetable. In the face of black swan events, even the best-laid plans of central banks sometimes have to make way for reality. Traders need to buckle up for a series of macroeconomic fluctuations.
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