The impact of Japanese yen interest rate hike on global asset price movement

Recently, the US dollar, gold, and Bitcoin have experienced a rare simultaneous decline, attracting market attention. This situation is relatively uncommon in history, as these three asset classes typically exhibit inverse movements.

Analysis suggests that the main reason for this phenomenon is the Bank of Japan's unexpected interest rate hike, which has led to a reversal of yen carry trades. Yen carry trades have always been a popular strategy for arbitraging the interest rate differential between Japan and the U.S. However, this interest rate hike by the Bank of Japan has suddenly narrowed the interest rate differential, making the original carry trades no longer profitable and even facing the risk of losses.

To avoid positions being forcibly liquidated, many investors have had to liquidate safe-haven assets such as gold and Bitcoin to obtain US dollar cash for additional margin. This process has caused Bitcoin and gold to experience significant selling pressure in the short term, ultimately leading to a sharp decline in the US dollar index, gold, and Bitcoin simultaneously.

From historical data, apart from the yen and Japanese government bonds, the long-term impact of carry trade reversals on other asset prices is not significant. Over the past 30 years, carry trade reversals have occurred multiple times, but the global stock market has reacted inconsistently, making it difficult to summarize a clear pattern.

However, this interest rate hike in the yen may have profound effects on the Japanese economy. The appreciation of the yen will put pressure on Japan's export-oriented industries, particularly in important sectors such as automobiles and semiconductors. Although Japan's foreign trade accounts for a relatively low proportion of GDP, the impact of the manufacturing sector on the Japanese economy far exceeds surface-level data.

Higher production efficiency and wage levels in the manufacturing sector will transmit to other industries through the Balassa-Samuelson effect, driving overall economic development. In addition, the production of Japanese companies' overseas factories is not counted in GDP, which leads to an underestimation of the actual contribution of the export industry to the economy.

For a long time, Japan has been striving to cope with deflationary pressures. The central bank's apparent hawkish stance undoubtedly brings uncertainty to the outlook for the Japanese economy. In the coming period, the market will closely monitor Japan's economic performance and its potential impact on global asset prices.