Japan ends the era of "easy money"! The world's cheapest funds are starting to rise in price
Japan, which had maintained a low interest rate for over a decade, has finally changed its course. The yen has transformed from a "cash machine" to "real currency," and the rules of the global funding game are being rewritten.
In the past, the Bank of Japan adhered to negative interest rates and unlimited easing policies for a long time, allowing international investors to borrow yen at low costs to invest in high-yield assets globally. But now, Japan has officially exited negative interest rates and begun the rate hike process, marking the end of an era of cheap funds.
Why must Japan raise interest rates?
First, inflationary pressures are mounting. Japan had long suffered from deflation, but now prices are rising across the board, especially for imported goods, which have surged due to yen depreciation, increasing the pressure on people's lives. The central bank has no choice but to raise interest rates to curb inflation expectations.
Second, the labor market has reached a turning point. Aging and labor shortages are driving wage increases, creating conditions for interest rate hikes.
More importantly, the continuous depreciation of the yen has evolved from an economic issue into a social topic. The central bank needs to respond to public concerns about currency depreciation, and raising interest rates has become an inevitable choice.
Impact on the global market
The interest rate hike in Japan directly hits arbitrage trading: the cost of borrowing yen to buy high-yield assets rises, which may trigger a capital return to Japan, leading to volatility in global stock markets, bond markets, and emerging markets.
Domestically in Japan, the banking sector will benefit from an expanded interest margin, but government debt pressure will also increase. As the country with the highest debt in the world, rising interest expenses will test fiscal sustainability.
Insights for investors
I believe that investors need to pay attention to three major changes:
No longer focus solely on the Federal Reserve; the Bank of Japan's policy direction is equally crucial;
The risks of high-leverage, high-valuation assets are increasing, while assets with stable cash flows are more resilient;
Exchange rate fluctuations may become a hidden source of risk, and exchange rate risk management needs to be strengthened.
Especially for high-risk assets like cryptocurrencies and U.S. growth stocks, the interest rate hike in Japan signifies the fading of the "cheap money" dividend, and investors should pay more attention to fundamentals and reduce reliance on leverage.
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