Under the attention of global financial markets, a unique phenomenon has emerged: the wave of interest rate hikes led by the United States has swept the world, but two giants have remained calm, China is understandable, but why is Japan not affected by the US interest rate hike?
Why is Japan indifferent to changes in the world economic map? The U.S. dollar and the yen seem to be one bright and one dark, but in fact, they are playing a sophisticated layout on the global economic stage. The Bank of Japan's next move is undoubtedly an important inspirational guide for investors.
Japan's strategy of continuing not to raise interest rates, in tacit agreement with the dollar, seems to be executing a unique financial tactic. They have issued a large amount of money, accompanied by a staggering decline in interest rates, and even entered an era of negative interest rates, this historic financial phenomenon is writing a new chapter in the history of global finance.
Their actions appear to be aimed at China, but what are their intentions?
Although the Bank of Japan claims that since the 90s, it has been printing money massively to combat deflation, with the goal of achieving 2% consumer prices**, its continued easing policy is misleading.
The essence of the strategy is to quietly harvest global wealth with the US dollar, especially against China's financial markets.
In fact, although Japan has issued a large number of yen, these currencies are not fully functional at home, and international reserves are not abundant. In fact, the amount of yen in circulation is not even as large as that of the dollar and the euro, and what is even more curious is that in the face of huge issuance, the yen has not only failed to significantly alleviate the deflationary pressure in Japan, but its international circulation is also surprisingly small.
A unique perspective: Global capital flows reveal that the huge yen is massed in the Japanese bond market, and that its boom stems from a long-term investment magnet effect. After accumulating earnings, foreign funds tend to convert into US dollars, which drives a large-scale influx of capital into emerging economies, such as China.
This process has been smoothed by the swap agreement between the yen and the US dollar, which has further circulated to seek investment opportunities around the world, such as China.
Japan has been emphasizing that inflation should be kept above 2%, so why is it investing heavily abroad? Couldn't investing in the country be more in line with its original purpose? In fact, the funds invested abroad are essentially the financial resources of Japan or the United States, which are not circulated in China, but are directly injected into the markets of other countries.
This is precisely the strategy of Japan's large-scale currency issuance through overseas investment, in a covert manner, while maintaining a stable exchange rate.
In China, Vietnam, India, and across Southeast Asia, including Japanese companies that control large Japanese conglomerates or are influenced by the United States, they have invested heavily in China.
According to statistics, as of the first half of 2023, more than 55,805 Japanese companies have invested in China, with a total amount exceeding 130 billion US dollars, ranking second in the world.
Such an economic pattern has created an effect on the circulation of the yen and the dollar, and a few cents of currency can be exchanged for the fruits of the hard work of other countries"Low-cost purchasing power"phenomenon.
Japan is faced with the reality that its GDP will be surpassed by Germany's, but they are calm because the depreciation of the yen has coincided with the soaring value of overseas assets. These extra dollars are like a surge of money, keen to invest overseas, pushing up assets**.
As U.S. interest rates rise, investors repatriate profits, leading to a decline in asset volatility in emerging markets. However, the US dollar has not stopped and continues to scour the world for low-priced assets, creating a cycle.
Reshaping the full cycle of the dollar system, and the world's wealth is in the bag.
The essence of the U.S.-Japan strategy of raising interest rates in the U.S. dollar is to raise the global borrowing threshold, causing economic problems and shrinking asset values in other countries, and subtly redistributing wealth.
The pace of US dollar interest rate hikes seems to be coming to an end, but if Japan intervenes, the global financial map may face a violent shock. As the largest holder of U.S. Treasury bonds, Japan is sitting on an impressive $30 trillion in overseas assets.
But why has the yen remained unchanged so far? Through the lens of history, this seems to imply a subtle tacit understanding between the United States and Japan - after the United States raises interest rates, Japan will sooner or later follow suit, and at that time, the Bank of Japan's interest rate hike will be like the last financial "killer" of the dollar.
After the bursting of the dot-com bubble in 2000, the flood of the financial crisis in '08 and the turmoil in China in 2015, these historical moments have one thing in common, that is, the adjustment period followed by the yen after the US dollar interest rate hike entered the end.
As I have explained before, the link for overseas investment is essentially the US dollar, and when the trend of capital repatriation slows, the yen is like the last straw that breaks the camel's back.
This series of historical processes is not a coincidence, but an elaborate stage play by the Federal Reserve and the Bank of Japan, in which Japan appears to be innocent and under pressure to raise interest rates, but in fact they skillfully use their strategies.
Recently, Japan's true intentions have begun to emerge, suggesting that there may be interest rate hikes in the future. However, looking at the current state of the domestic economy, especially the Nikkei 225 has doubled since 2019, when it climbed to a 50-year high.
If Japan really raises interest rates at this moment, can it still withstand the test? The question raised may reveal a potential logical pitfall.
Imagine Japan** having miraculously tripled in the short term recently, yet real economic growth is negligible. Even if there is something, Japan still enjoys huge profits from this process.
Overseas funds have contributed to the current upsurge of Japan and the United States, and they have taken over at a high level, just like the retreat of the dollar caused by other countries"Feast", completing the first harvest.
With the loss of funds from other countries, they pushed up the United States and Japan**, and the Bank of Japan's interest rate hike has achieved a second "harvest", and then these funds will once again circulate around the world.
In the face of these complexities, it is crucial to dissect the full picture of the U.S.-Japan relationship. Many of the seemingly bizarre phenomena in the Japanese financial market were instantly explained in a reasonable way.
For example, Japan has implemented negative interest rates, but there has been no large-scale outflow of funds, and even Warren Buffett, the god of stocks, has chosen to take out loans to purchase Japanese stocks.
There has never been a historical precedent for a US dollar rate cut to coincide with a yen rate hike, and the pattern is clear: the US dollar rate cut always follows the yen rate hike or is later in the course of its rate hike process.
Therefore, investors must remain vigilant in the United States** and Japan**, which are currently running at high levels, and beware of the unexpected arrival of Black Thursday. Those who take over at a high position may be at risk of their wealth evaporating overnight.
In our view, stability is a top priority, and this is evident in our bank's performance. Japan's interest rate hike is a sign of the country's firm stance.
Sitting on 3 trillion foreign exchange reserves, we are like a strong shield to guard the way forward. Although the potential threat of real estate risk has gradually dissipated, time is running out for the United States and Japan.
Once the dollar starts its journey to cut interest rates, China will usher in a boom in capital repatriation, while the United States, the risk is only the beginning.