Japan’s Interest Rate Hike: Why It Matters for You! #financialnews #economy #japan #shorts
There’s a piece in the Wall Street Journal, the Bank of Japan raised rates. Here’s why you should care. And ultimately, look, there are two reasons why you could potentially care what the Bank of Japan does. The first is rising interest rates in any major economy can potentially push up interest rates in other major economies just because of international investors who may be seeking out arbitrage options and trying to figure out uh the best place to park their money. >> Putting it plainly, if you want to get paid for owning a government’s debt, if other governments start offering more interest, >> you might go there. You might go there instead of to the United States. Correct. The United States needs you because we are not great at managing our finances. >> To be fair, no one’s great at managing >> nor is Japan nor [laughter] you know [clears throat] the list of countries that are really good at managing their finances. It’s >> pretty slim. >> It’s a pretty small list. But so this is one of the reasons why it matters. The other reason why it matters to the US is because of the potential impact on equity markets. Because Japanese investors, one of the things that they love to do is they say, “Okay, we’ve had since, you know, the mid200s a currency that’s been depreciating against the US dollar.” This is Japan. I’m I’m now a Japanese hedge hedge fund manager. So, the Japanese yen has been depreciating against the US dollar for the better part of the last 15 years. Well, you know what, Mike? As a as a person in Japan, can I eat dollars? >> No, I’m aware of I can’t. But what I can do is I can I can use yen to go and buy food. And so if I can take my yen, convert them over to dollars, go earn a higher rate of return in dollars, and then pay myself back with an exchange rate that has depreciated, I’m coming out with more yen, which means I can feed myself more good. The wrinkle in this is if Japanese investors start saying, and this is again kind of the extension of what we talked about, hey, I can earn more in Japan than having to do that big currency conversion, bring it over, and then bring it back and do this whole thing with a bunch of, you know, currency swaps and everything. Does it impact flows into US risk asset markets like equities and real estate as well, not just >> bonds? And we saw this, by the way, with Yenmageddon last year in late July, early August where basically the yen dollar exchange blew out. You saw the VIX go up to 60 in one day and everyone’s sitting there like, “What the heck happened?” >> What is the carry trade? Which probably not that likely to happen again in such a short time period. >> The same thing usually doesn’t cause problems in in short order that way. But these are reasons why in theory you might want to care what the Bank of Japan does.
The Bank of Japan just raised interest rates to 0.75%, the highest since 1995. Discover the significant impact this move has on the global economy and what it means for your finances. Learn why this economic shift is crucial for everyone.