Japan's "interest rate hike" reversal? The market may still have short-term bullish space
The Bank of Japan plans to hold a monetary policy meeting from the 18th to the 19th. Currently, five sources have revealed that the central bank is inclined not to raise interest rates in order to have more time to assess overseas risks and next year's wage outlook.Author: James, BlockTempo
The Bank of Japan will hold a monetary policy meeting from the 18th to the 19th, during which 9 members of the monetary committee will review whether to raise interest rates from 0.25%. However, according to Reuters, five sources indicated that the Bank of Japan is inclined to keep interest rates unchanged, as decision-makers want to take more time to examine overseas risks and clues about next year's wage prospects.
The report mentioned that there is no consensus within the Bank of Japan regarding the final decision, as some monetary committee members believe that Japan has met the conditions for a rate hike in December, while others think that the rebound of the yen has alleviated price pressures, and the Bank of Japan is not in a hurry to raise rates.
Originally, according to a Reuters survey last month, more than half of economists expected the Bank of Japan to raise rates this month, with about 90% of respondents predicting that by the end of March next year, the Bank of Japan would raise rates to 0.5%. However, the market currently expects the probability of a rate hike in December to be less than 30%.
Sources indicated that with moderate economic growth, steady wage increases, and inflation exceeding the 2% target for more than two years, there is growing belief within the Bank of Japan that the conditions for further rate hikes are gradually forming. The Bank of Japan may maintain its confidence in the economic outlook, continuing to believe that consumption trends are growing moderately.
However, the urgency for a rate hike is currently low, as the recent rebound of the yen has reduced inflationary pressures from imported raw materials. This contrasts with the situation in July when rates were raised to 0.25%, at which time the yen depreciated rapidly, pushing up import prices and increasing the risk of inflation exceeding expectations.
Fed Expected to Cut Rates by 25 Basis Points This Month
As Japan leans towards not raising rates this month, the Federal Reserve will also announce its latest rate decision at 2 AM Taiwan time on the 19th. Data released on the 11th showed that the Consumer Price Index (CPI) in November increased by 0.3% month-on-month and 2.7% year-on-year, fully in line with market expectations. Although inflation data accelerated compared to last month, the market believes it is still insufficient to prevent the Fed from cutting rates at this meeting.
According to CME's FedWatch tool, the market expects a 98.6% probability that the Fed will cut rates by 25 basis points at next week's meeting.
However, as U.S. inflation has risen for the second consecutive month, the Fed's rate decision may become more complicated, and the long-term trend of rate cuts may slow down, which means that yen carry trades may still have room to remain attractive.
Is There Still Short-Term Bullish Space in the Cryptocurrency Market?
Experts analyze that the current overall economic situation allows Bitcoin to maintain its arbitrage space against the yen, potentially returning to $100,000. If Japan continues not to raise rates and the U.S. maintains the current uncertainty regarding long-term inflation, the cryptocurrency market may still have short-term bullish space.
However, investors should remain vigilant about the drastic changes in overall economic policies in both the U.S. and Japan. As long as the arbitrage space disappears, the wave of unwinding yen carry trades that occurred in early August this year may happen again, impacting global financial markets.
The Bank of Japan decided to raise rates by 15 basis points at the end of July this year, coupled with the Fed's preparation to cut rates at that time, leading to a surge in the yen and compressing the profit margins of "borrowing low-interest yen to buy high-interest currencies" arbitrage trades, resulting in a large number of investors unwinding their positions, which severely impacted global stock and cryptocurrency markets in early August.
