Impact of Japan's Interest Rate Hike on Global Economy

The concern is that Japan's interest rate hike may lead to an economic recession, but the global M2 money supply does not seem likely to decrease significantly.

### Market Uncertainty: Yen Carry Trade, Interest Rate Hikes, and Global Economic Impact
* 🇯🇵 The Bank of Japan surprised markets by raising its benchmark interest rate to **0.15%**, following a pattern similar to the U.S. model of **0.25% adjustments**.
* 💼 Concerns about the "**yen carry trade**" have been circulating, where investors borrow in yen at low rates to invest in higher-yielding assets, potentially **unwinding as rates rise**.
* 📉 Market volatility on July 11th triggered discussions about the potential impact of **carry trade liquidation**, with some linking it to **broader market movements**.
* 💰 Despite fears, the speaker argues that the **global money supply is still increasing**, with the U.S. and Europe likely to **inject more money** even if Japan tightens.
* 📉 The speaker believes that the current market adjustments have not yet brought prices down to **more affordable levels**, leading to **continued uncertainty**.
* 💼 The speaker closed their short position, indicating a **shift in their market outlook** following recent events and data.
* 📊 The potential for a **significant market trigger** (e.g., geopolitical conflict) is mentioned as a factor that could lead to **more drastic market movements**.
* 💼 The speaker cautions that while adjustments have been made, prices are still high, and further analysis is needed to determine the **market's true value**.

Uncertainty has become a singer. Ah, but there was no carry trade that we were worried about. They said there wasn't. Who said the carry trade was scary? Who said that? Who was it? I didn't say it. The Bank of Japan's governor has also made some hawkish comments. Yes, but for now, I think we should see that Japan has shown its intention. First of all, the yen has raised interest rates today. Ta-da! Interest rate hike! Ta-da! If you look at today's interest rates, the yen's rate decision has increased more than expected. Now, if you look at the interest rate situation, you might wonder how to interpret this. You might think, What nonsense is this? But let's take a look. Japan has raised interest rates, but the problem is that even though they raised them, we still need to look at the U.S. interest rates as well. They raised them, but what is it still?

You need to remember that although the interest rate has been raised, it is still low. It is still low. So, if suddenly from 152% or 153 points, it drops to 123, the market would go crazy and collapse. But that didn't happen; that was not the case. Then, they raised it to 0.15. I thought they wouldn't raise the interest rate in Japan, but they did raise it. The reason for adjusting it to 0.2 is that it follows the American model. What does that mean? It means adjusting by 0.25%. In the past, Japan has been known for its manual approach, and because of that, they are following the U.S. model of adjusting by 0.25%.

In fact, if you look at the 10-year bond rate aside from the benchmark interest rate, you will see that they previously adjusted it by raising it from 0.1 to 0.25, then to 0.5, and then to 1 percent. So, in a way, their manual is already set in their minds. They have raised the rates according to this manual. They are a nation of manuals. Therefore, when we consider this aspect, what we are worried about is what happens if the yen carry trade collapses. We have talked about this a lot. Now, let's review what the yen carry trade is. What does the yen carry trade mean?

Let's assume that I take out a loan with an interest rate of about 1%. Currently, the 10-year bond yields 1%. So, what do I do with this 1% loan? I invest in dollars. If you look at the current dollar yield, it is around 4%. How much do I earn from this? Right here, I can make a profit of 3%. This can be referred to as a carry trade, and it can apply to stocks, real estate, bonds, and more. 

Now, what happens if the yen loan interest rate rises? The portion where we benefit decreases, so as this decreases, what can we do? We can reduce the scale of our investment or even withdraw our investment. Moreover, currently, the dollar is moving towards interest rate cuts, and if this continues, the profit could decrease even further. This could lead to a situation where the carry trade becomes less favorable.

There has been talk about how to deal with the reduction in trade, but I keep saying that the NKY trade is not a problem at all. When you look at what they are saying, the NKY trade is something that hedge funds also engage in a lot. If their leverage ratio is excessively high, then there will be issues in the market. We will need to check this in a day or two, but I don't think the leverage ratio is excessively high. This is because leverage was already liquidated once, back in November 2022 and March 2013. If we look at the 10-year yen bond rates, there were signals indicating that it wasn't completely absent. Let's take a look at the yen. If you search here, you will find it.

If you look now, you can see that the yen is rising significantly compared to a year ago. It has increased a lot compared to a year ago. When you look at it over a ten-year period, it is still fluctuating around the same level. The ten-year bond has been on an upward trend when viewed on a weekly basis. The ten-year bond is linked to market interest rates and bank loan rates, so if you use this as a benchmark, there are many discussions about whether the yen carry trade will be unwound or what will happen if the benchmark interest rate rises. However, if you look closely, Japanese ten-year bonds and the market interest rates in Japan, as well as the so-called benchmark loan rates, have already increased. The loan rates have been rising for quite some time. Therefore, if suddenly something that was at 1% jumps to 2% in this situation, it will have an impact.

If it rises like that, the market will react with, What is this? and large-scale liquidations of ranked trades will occur. The market has already shown signs of rising since 2023. Let's talk about March 2023, but going back to November 2022, I can hardly remember because banks were failing. There was that Swiss bank, what was it? Ah, Credit Suisse. When Credit Suisse went bankrupt, there were already signs in the bond market. Even before Credit Suisse's bankruptcy, gold prices were rising, and there were concerns about the UK and other failures. From that time, if you look at Deutsche Bank, how it was affected, and how Credit Suisse was impacted, there were already sufficient events to reduce leverage ratios.

In Switzerland, there were about 30,000. Then, in 2023, if you look at what happened, the Silicon Valley Bank in the United States also collapsed. The Silicon Valley Bank went bankrupt, and there were definitely warnings about leverage ratios in the U.S. After that, the authorities kept saying, You guys need to be careful about your leverage ratios. This has been discussed for a long time; it has already been mentioned many times. As a result, the market was already aware of the points that needed to be prepared for. If someone was caught off guard by today's BOJ interest rate hike, then that person made a mistake. If suddenly my account collapses due to the BOJ interest rate hike, isn't that a failure to manage? That's where I stand on that issue.

The carry trade has been a warning signal in the market for a long time. In Japan's bond market and monetary policy market, this issue has already been a significant concern. So, when stock prices drop, it's not just because of the carry trade; it's a rather pretentious term. What are they trying to say with that? People are creating reasons for selling out of fear. They are trying to scare others, saying that if this issue escalates, then it will truly become a problem. Are people really not prepared for this? A significant crash, a truly critical drop, can catch anyone off guard. It happens when no one expects it, and that's when everything falls apart. For example, take NVIDIA.

Continuing, what I mentioned is that right now, no one knows the issue. Of course, NVIDIA is making a lot of money; everyone agrees on that. Suddenly, the stock drops by 10%, and people are like, What’s going on? What’s AI? What is this? Typically, in situations like this, there are sudden points where a crash can happen. I will mention the conflict between Israel and Iran, but rather than that, I think it should be on the level of Russia attacking Europe. Only then would people think, We need to sell everything. If China were to attack Taiwan, that would also trigger a similar reaction. Suddenly, this is what we call a circuit breaker, where those who sell quickly become the winners. Right now, the core point of the selling reason is that people keep saying, The prices are too high; everyone knows that.

It's expensive, I know that. It's expensive, so adjustments are coming. Because it's expensive, I think we should be cautious when prices are high. But when reasonable adjustments occur, we should calculate the value and analyze the psychology behind the charts. However, the reason I'm still a bit anxious is that we haven't reached the point where the adjustments have brought prices down to a more affordable level. So, I'm still uneasy. Let's take a look; is it cheap? It's not cheap right now. The earnings reports are coming out, and Ford is also experiencing adjustments. Is it cheap or not? It's not cheap. That's why in the market, it's normal for prices to drop a bit and then rise again. This is the reason for that. So, in that regard, the first short-term adjustment has ended. But we still want to confirm something: we want to see NVIDIA's earnings report and whether NVIDIA has grown more than we expected, reaching 30.

If the numbers suddenly drop to 27 or 26 after the earnings announcement, it means that there will be more selling pressure. Whether that will happen or not depends on Nvidia's earnings announcement, so we need to keep an eye on that. I don't really hope for a green light, but based on the forward P/E ratio, I think everyone should at least see some results. After Microsoft's earnings announcement, the stock adjusted to the mid-20s P/E ratio. So, if other companies also announce their earnings and if the results improve, the forward P/E shouldn't drop to 20 times just because of that. The stock price should stabilize and perhaps drop to around 20 to 25 times. It seems like the stock price has already reflected a year's worth of performance. If the stock price next year is around 25 times, then I might just buy and hold for a year. However, it has gone up quite a bit.

If there are expensive items, the conversation about them being costly is inevitable. In that regard, one of the reasons for selling in the market is the discussion about the yen carry trade. Coincidentally, on July 11th, everything dropped simultaneously. If you look here, July 11th is marked. This is the chart, and here is where July 11th is. Starting from July 11th, everything started to decline. The yen dropped, and then if you look at the QQQ, it also fell on the same day. For those who came to Busan, I showed you this chart, right? Everyone who listened to Sparta saw this chart. It started to decline from the 11th. So, what does the chart indicate? It shows that everything is moving together, which is why there was more discussion about the carry trade, particularly the yen carry trade.

Since the 11th until now, it's been a bit like this, you know? It's kind of like this. Yes, yes, it's happening, it's happening, it's happening. You can see the market, right? You can see it. If you move this part, you can see it clearly. Yes, you can see it. It's going exactly the same way, I mean, it's going exactly the same way. So if you look at this part, you can see that the movements are very consistent. If you look at how the market is moving, you can see that it has been going out in the same way. It's exactly the same, right? The market has a strong correlation, and when you run the algorithm, you can see that it's moving together with the other market. Is this because of the liquidation of the carry trade? That's what I was thinking. If it decouples, we will look for another reason anyway.

In this part, the market is still showing a strong rebound. Looking at Microsoft's earnings report, it's quite impressive. The results were good, and Microsoft made similar statements to Google, saying they need to invest more. It seems that AMD's AI products are selling better than expected. AMD mentioned that their sales are better than what they reported last quarter. So, if you look at it this way, AMD and NVIDIA may have different angles, but it would be good to see them grow together. For now, let's keep an eye on this. Don't be afraid of the carry trade; it seems like they are just looking for reasons for the decline, and still...

What is still unsatisfactory in the market is that things are expensive, and that concern remains. It's true that things are still expensive; we have to acknowledge that. However, I have closed my short position. Wow, 88%! That's crazy. I've closed my short position. Even after looking at Microsoft's earnings, I don't really think the market will drop. But I do think it will find its footing again. 

They say that if interest rates in Japan rise, it could lead to an economic recession. But why is that? They claim that rising interest rates in Japan could block the flow of money and lead to a recession, but I completely disagree. Right now, the market is saying that we are moving from zero interest rates to normal interest rates, indicating that tightening is happening. But this is not a return to the situation before COVID.

If you look back, there was someone who was also using zero interest rates before COVID. Who was it? Europe was already implementing zero interest rates, just like Japan. Recently, in the case of the UK, they raised the base rate to 4.5%. The reason for this increase is significant. They have now lowered it to around 4%. If this were all high interest rates, the question would be whether a recession is coming. The places that print money include central banks, but the treasury also prints money by issuing bonds, essentially pulling future money into the present. However, if we look at this situation, they are now raising interest rates. But who is raising the rates? It's Europe that is raising the rates. Let's focus on the core, which is the United States. In the U.S., they are...

The interest rates have gone from zero to high, and now they are fluctuating. What does this mean? Before the pandemic, the United States was not at zero interest rates. Before the pandemic, the U.S. was raising interest rates, but after the pandemic hit, they went back to zero and are now talking about raising them again and then lowering them. When looking at this trend, it is correct to say that when the money supply decreases, an economic recession follows. However, if you look at the situation in the U.S., money is not decreasing; in fact, it is not decreasing at all. Therefore, we can accept that the tightening of monetary policy could lead to concerns about an economic downturn. Initially, the U.S. and Europe will likely inject more money, even if Japan is pulling back. Additionally, China continues to inject money into the economy. It is important to consider this from a global perspective. So right now...

Since the economic power has completely disappeared, if we look at the total amount of money on Earth as a basis, I think the concern that Japan's interest rate hike will lead to an economic recession is too great. I am referring to the M2 money supply. Moreover, if we consider not only the U.S. M2 money supply but also the global M2 money supply converted into dollars, it does not seem likely to decrease significantly. Governments are continuously printing money. Therefore, I don't think there is much to worry about in that regard. People keep saying that a recession is coming, but they don't talk about a serious recession. Even if a recession occurs now, there are various means to respond. The Federal Reserve always says that we have many tools at our disposal, so I believe there is no need to be anxious. Now, let's cut this part and move on.

The trade is being liquidated. It gets smashed.

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설명왕_테이버

The Impact of Japan's Interest Rate Hike on the Yen Carry Trade

Japan has surprised the market by raising its interest rates, contrary to expectations, in alignment with the U.

The fear of a potential collapse of the yen carry trade arises as higher loan interest rates would decrease profits and could make the trade less favorable, especially with the potential for the U.

The manual approach of Japan in raising rates, and the potential impact on the profitability of the carry trade, raises concerns about the future of investments in dollars.

The N-Call Trade and Market Leverage Ratios

The N-Call trade is being compared to hedge fund activities, but the speaker believes that the leverage ratio is not excessively high.

The rising yen and the increase in bond rates are seen as indicators of the market's reaction, with previous events already leading to reduced leverage ratios.

The speaker emphasizes the need for careful management in light of potential BOJ interest rate hikes to avoid account collapse.

The Significance of the Carry Trade in the Market

The carry trade has been a long-standing warning signal for the market, particularly in Japan's bond and monetary policy market.

The use of the term "carry trade" is creating fear and anxiety among people, leading to a significant drop in stock prices.

The ongoing uncertainty about high prices and the lack of a substantial trigger for a sudden drop are contributing to the uneasiness in the market.

Analysis of Stock Movement and Market Correlation

The stock's performance is closely tied to the earnings announcements and forward P/E ratio.

The market showed a strong correlation and consistent movement, potentially due to the liquidation of positions and the discussion about the yen carry trade.

The speaker is considering holding onto the stock if the price remains around 25 times earnings next year, but is also open to other reasons for the market's behavior.

The Current State of the Market and the Impact of Rising Interest Rates

Microsoft's impressive earnings report and plans for increased investment are driving the market's strong rebound.

AMD is experiencing better-than-expected sales of its AI products, potentially influencing the market alongside NVIDIA.

Despite concerns about expensive prices, the narrator has closed their short position and is optimistic about the market's future.

The rising interest rates in Japan, Europe, and the UK are causing a shift in the market, raising questions about a potential economic recession, but the focus is now on the United States and its approach to interest rates.

The Fluctuating Interest Rates and Global Money Supply

Interest rates in the US have shifted from pre-pandemic increases to post-pandemic decreases, and now there is talk of raising them again, creating concerns about an economic downturn.

Despite the tightening and the potential for a recession, the US, Europe, and China are all injecting money into the economy, which is likely to prevent a significant decrease in the global money supply.

The continuous money printing by governments and the reassurance of having tools to respond from the Federal Reserve suggest that there may not be a serious recession to worry about, providing various means to address the situation.