Original Author: Long Yue

Original Source: Wall Street News

As the Bank of Japan's monetary policy meeting on December 19 approaches, concerns in the market about a potential hawkish interest rate hike are intensifying. Will this move end the era of cheap yen and trigger a global liquidity crisis? A recent strategy report released by Western Securities on December 16 provides an in-depth analysis of this issue.

High Inflation Makes Hawkish Rate Hikes Inevitable in Japan

The report points out that there are multiple driving factors behind the Bank of Japan's potential interest rate hike. First, Japan's CPI has consistently exceeded the official inflation target of 2%. Second, the unemployment rate has long remained below 3%, creating favorable conditions for nominal wage growth, with high expectations for wage increases in next year's "Shunto" (spring labor negotiations), which will further elevate inflationary pressures. Finally, the 21.3 trillion yen fiscal policy introduced by Prime Minister Kishida could also exacerbate inflation.

These factors collectively compel the Bank of Japan to adopt a more hawkish stance. The market is concerned that once the interest rate hike is implemented, it will lead to a concentrated unwinding of a large number of "carry trade" positions accumulated during Japan's YCC (Yield Curve Control) era, thereby causing liquidity shocks in global financial markets.

Theoretical Analysis: Why the Most Dangerous Phase of Liquidity Shock May Have Passed

Despite market anxieties, the report analyzes that, theoretically, the current impact of Japan's interest rate hike on global liquidity is limited.

The report lists four reasons:

Risk Has Been Partially Released: The Bank of Japan has raised interest rates three times since March of last year. Among these, the rate hike in July last year, combined with the exit from YCC, indeed caused significant liquidity shocks, but the impact of the January rate hike this year has clearly diminished, indicating that market adaptability has increased.

Speculative Positions Have Exited Early: Data from the futures market shows that most speculative short positions on the yen were closed out in July last year. This means that the most active and likely to trigger chain reactions "carry trades" have already receded, and the most dangerous phase of liquidity shock has passed.

Different Macroeconomic Environment: Currently, the U.S. is not experiencing a "recession trade" similar to that of July last year, and there is little pressure on the dollar to depreciate, while the yen itself is weak due to geopolitical and debt issues. This weakens expectations for yen appreciation, thereby alleviating the urgency of unwinding "carry trades."

The Federal Reserve's "Safety Net": The report specifically mentions that the Federal Reserve has begun to pay attention to potential liquidity risks and has initiated balance sheet expansion (similar to QE) policies, which can effectively stabilize market liquidity expectations and provide a buffer for the global financial system.

Actual Risks: "Catalysts" in a Fragile Market

The report emphasizes that theoretical safety does not mean being complacent. The current fragility of the global market is the real source of potential shocks triggered by Japan's interest rate hike. The report describes this as a "catalyst."

The report analyzes that the significant impact of Japan's interest rate hike last July was due to the resonance of two major factors: "a large number of active carry trades being unwound" and "the U.S. recession trade." Currently, the conditions for the former have weakened. However, new risks are emerging: the global stock market, represented by U.S. stocks, has experienced a prolonged "bull market" for six years, accumulating a large number of profit-taking positions, which creates fragility. At the same time, concerns about the "AI bubble" in the U.S. market have resurfaced, leading to heightened risk aversion.

However, the current global stock market, represented by U.S. stocks, has already been in a six-year "bull market," which itself has inherent fragility, and the renewed concerns about the "AI bubble" have led to strong risk aversion, making the yen's interest rate hike a potential "catalyst" for triggering global liquidity shocks.

In this context, the certainty of Japan's interest rate hike could very well become a trigger, prompting a panic exit of funds and thereby inducing a global liquidity shock. However, the report also provides a relatively optimistic assessment: this liquidity shock is likely to force the Federal Reserve to implement stronger easing policies (QE), so the global stock market may quickly recover after a brief sharp decline.

Observe More, Act Less, Keep a Close Eye on "Triple Kill" Signals in Stocks, Bonds, and Currencies

In the face of this complex situation, the report advises investors to "observe more and act less."

The report believes that since the Bank of Japan's decision is essentially "transparent," but the choices of funds are unpredictable, the best strategy is to maintain observation.

Scenario One: If there is no panic exit of funds, the actual impact of Japan's interest rate hike will be very limited, and investors do not need to take action.

Scenario Two: If panic among funds does indeed trigger a global liquidity shock, investors need to closely monitor a key signal—whether the U.S. market experiences 2-3 consecutive instances of "triple kills" (i.e., simultaneous declines in the stock market, bond market, and currency market). The report points out that if a situation similar to early April of this year reoccurs, it would indicate a significantly increased probability of a liquidity shock in the market.

Finally, the report concludes that even if Japan's interest rate hike causes turmoil in the short term, it will not change the long-term trend of global monetary easing. In this context, it continues to be optimistic about the strategic allocation value of gold. At the same time, with the expansion of China's export surplus and the Federal Reserve's resumption of interest rate cuts, the renminbi exchange rate is expected to return to a long-term appreciation trend, accelerating the return of cross-border capital and benefiting Chinese assets. The report is optimistic about AH shares experiencing a "Davis Double Play" in terms of profits and valuations. For U.S. stocks and bonds, the report holds a view of volatility.

免责声明：本文章仅代表作者个人观点，不代表本平台的立场和观点。本文章仅供信息分享，不构成对任何人的任何投资建议。用户与作者之间的任何争议，与本平台无关。如网页中刊载的文章或图片涉及侵权，请提供相关的权利证明和身份证明发送邮件到support@aicoin.com，本平台相关工作人员将会进行核查。