The Truth Behind the Bank of Japan's "Holding Steady": The Global Liquidity "Faucet" Is Quietly Tightening


The Bank of Japan announced today that it will keep interest rates unchanged, but based on the remarks from officials, the possibility of a rate hike in June is gradually increasing.
Many people may not know that the Japanese yen is an "invisible supplier" of global dollar liquidity. Large amounts of funds are borrowed in yen at low interest rates, exchanged for dollars, and invested in higher-yield markets, which is a classic carry trade. Once Japan raises interest rates, these arbitrage positions will be forced to close, ending the trades, and then global liquidity will be quickly drained, leading to widespread declines across various markets.
Including the well-known U.S. stock market, which will also be greatly affected. People usually don’t have a good impression of Japan, but its impact on the global financial markets is extremely significant. We often think that the global liquidity is mainly influenced by the Federal Reserve, but in fact, Japan’s ultra-low interest rates are one of the "faucets" for global funds. Once rates are raised, the faucet is turned down, and global markets will become tense accordingly.
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