The Federal Reserve is indeed lowering interest rates, but what is even more concerning is the interest rate hike by the Bank of Japan.
For a long time, the yen has had almost zero interest rates, becoming a "free financing tool" in the eyes of global investors. The operation is simple: borrow low-interest yen, convert it to dollars, and then rush into high-yield pools like U.S. Treasuries and U.S. stocks. This strategy is called "carry trade," which has allowed countless institutions to reap significant profits.
But now, the Bank of Japan has started to raise interest rates. The interest rate differential between the U.S. and Japan is narrowing, and the profit margin for carry trades is being directly squeezed—potentially even reversing. As a result, traders have to close their positions: selling off dollar assets to buy yen and repay debts. Once this action gains scale, the dollar will be sold off in large quantities, and funds will begin to withdraw from the U.S. market.
The founder of Jacobs Investment Management put it bluntly: this could trigger a tightening of the global financial environment and worsen liquidity. Although the market generally believes that after last August's shock, the positions in carry trades have already decreased significantly, the impact this time should not be so severe. But the problem is, the Federal Reserve is still reducing its balance sheet, and dollar liquidity is already tight; having this happen now is simply adding fuel to the fire.
When liquidity tightens, risk appetite will be suppressed. U.S. Treasuries, especially long-term bonds that are sensitive to liquidity, may face selling pressure in the short term. The market's nerves are currently very tense. $BTC #日本加息
