$TNSR
The US-Japan currency war has gone crazy! The US forces Japan to be a 'blood bag', is hot money running rampant in the crypto circle going to panic?
The US is now in a situation where it cannot back down. With non-farm payroll data breaking 200,000 for three consecutive months without interest rate cuts, public opinion in the Rust Belt and lobbying from Wall Street could turn things upside down. If interest rates are cut, hot money will run faster than a rabbit, and the market value supported by US stock buybacks and the 3.2 trillion yuan floating profit in the housing market will all go cold!
So the US has set its sights on Japan as the 'external blood bag'! From 2024, Treasury Secretary Yellen will apply pressure, and by 2025, during the Tokyo meeting, the message will be clear: you raise interest rates, and I’ll take back my outflowing hot money! After all, Japan has a pool of 20 trillion dollars in overseas assets. Once the US-Japan interest rate differential narrows, carry trade funds will flow back to Japan, which can also strengthen the yen and curb inflation, weakening Japan’s manufacturing competitiveness—simply killing two birds with one stone.
But Japan is not a soft persimmon! IMF data shows that its government debt ratio is as high as 229.6%. Raising interest rates by 1% would require an additional 12 trillion yen in interest payments each year, equivalent to three national defense budgets! In December, Bank of Japan Governor Ueda just sent hawkish signals, and the yield on 30-year government bonds hit a record high, scaring the Ministry of Finance into making clarifications overnight. Not to mention 2.7% inflation outpacing 1.8% wage growth; raising interest rates is like stepping on the brakes for consumption.
So Japan is playing a game of diversion: a 25 basis point rate hike in December is a done deal, but they are making small moves in the Taiwan Strait and the South China Sea. In plain terms, they are telling hot money: there are risks in the east, and interest in the west; choosing me is safer! But the market is not foolish. When the yen rises to 154, northbound funds instead rush into A-shares, stability is much more appealing than this small interest differential.
The worst off are still emerging markets, where the volatility of the Indonesian rupiah and Brazilian real has soared to highs not seen since the Russia-Ukraine conflict; Southeast Asian central banks are caught between the dilemma of cutting rates to stimulate and raising rates to stabilize the exchange rate. Ironically, Japan reduced its holdings of US Treasuries by 32 billion dollars in November, while the US's 2.1 trillion dollars in new debt has no takers. This 'blood borrowing' is quickly turning into 'mutual bloodletting'!
Will this currency war without winners become an opportunity for cryptocurrencies? Do you think hot money will ultimately flow into the crypto circle for safe haven, or will it continue the tug-of-war between the US and Japan?
