Shock! The US Debt 'Explosive' Crisis Surprisingly Relates to the Bank of Japan?
The Federal Reserve's interest rate meeting has concluded. Although there was no interest rate cut this time, two rate cuts are expected within the year. A major highlight of the meeting was the significant slowdown in the pace of balance sheet reduction and quantitative tightening (QT). Starting in April, the monthly redemption limit for US Treasury bonds will decrease from $25 billion to $5 billion, and the size of the balance sheet will remain large for an extended period, in order to mitigate the impact on market liquidity.
The market reacted swiftly to this, as the Federal Reserve's stance was dovish. When Powell spoke, US stocks rebounded, gold prices reached new highs, and the cryptocurrency market also saw a recovery, with Bitcoin briefly breaking through $87,500, filling the CME gap. In the Bitfinex exchange, buyers dominated the market, with inflows exceeding sellers by $467 million. This week, there are signs of capital inflows during the spot ETF trading days, and Bitcoin rebounded above the 200-day moving average, which is beneficial for restoring market confidence.
On a global macro level, the Bank of Japan maintained its 0.5% interest rate yesterday. Japan has long implemented a low-interest rate policy, and now the inflation rate has risen significantly, with the last round at 4.0%. The data expected to be released tomorrow is projected to rise to 4.2%, which is at a historically rare level. Adjustments to its monetary policy are under close scrutiny, which will affect yen carry trades. In the past, Japan's low borrowing costs led to capital inflows into the US stock and bond markets for profit. However, if the Bank of Japan raises interest rates, financing costs will increase, leading to a sell-off in US Treasuries and compressing yield space, potentially changing yen carry trade strategies. Last August's Black Monday caused Bitcoin to fall below $50,000 due to position liquidations in that trade.
The Federal Reserve will not hold an interest rate meeting in April, but it will slow down quantitative tightening, with the probability of a rate cut in May being less than 20%. A low-interest rate environment is crucial for market liquidity and is favorable for Bitcoin prices. The US debt system is enormous, and lowering interest rates is key to alleviating fiscal pressure. The government hopes to reduce Treasury yields and financing costs. Over the past 12 months, interest payments on Treasury bonds reached $1.2 trillion, surpassing defense spending. If interest rates remain unchanged, it could reach $1.5 trillion by the end of the year. Even if interest rates are cut by 100 basis points, annual interest payments would still be about $1.3 trillion, making a debt spiral unavoidable. Against the backdrop of global central banks buying gold to cope with financial risks, and rising money supply and gold prices, the correlation with Bitcoin prices suggests an optimistic outlook for the future.
