The Bank of Japan Blinks and Markets Tumble

Bitcoin Magazine ProThe Bank of Japan (BOJ), sent tremors across capital markets after it announced that it had increased the cap on 10-year yields from 0.2% to 0.5% while maintaining the same short- and long term interest rates. Link to embedded tweet. The 0.25% cap had been suppressing global bonds markets through the unlimited money printer that was available for Japanese debt. This led to a significant decline in the yen against USD, while the BOJ used its vast pile of Treasurys to sometimes defend the currency from speculators. Link to embedded tweet. Although the change in market dynamics was massive, it still leaves the BOJ well below its peers in terms policy rate. This is due to the demographics and debt-to-GDP statistics in Japan. Economists were not expecting this yield-cap rise to cause an immediate jump in yen and a slide of global government bonds. This sent shockwaves through global financial market. It also caused a surge of Japanese bank stocks as investors expected better earnings for financial institutions. Haruhiko Kuroda, Bank of Japan Governor, laughs as he raises rates for the rest of the world. The BOJ tightens its policy and Japanese debt becomes more attractive. This also causes the yen to appreciate. This causes interest rates to rise in the U.S., but it also causes the dollar’s value to fall relative to other foreign exchange markets. As bond yields remain at high levels, well above previous years, asset valuations that are based on discounted cash flows will continue to fall. Many market participants are waiting for 2021-like conditions in various financial markets. However, it is important to understand how the change in debt markets affects all liquid markets and relative valuations. The turbulence will only increase from here. While the bitcoin market has already experienced a significant deleveraging, the “paintrade” (as many refer to it) could simply be a prolonged period of sideways consolidation as legacy market dominos fall at an increasing rate. We expect the next secular bull run to be fueled by accommodative responses to the current conditions. Global financial market liquidity, credit worthiness, and asset price valuations will likely fall further from now — until the fiat money monetary overlords decides to debase. This is the status quo on the fiat currency standard. Link to embedded tweet. We are now in step 3. Keep calm, lads. You like this content? Subscribe now to receive PRO articles directly in your inbox.Relevant Past Articles:The Unfolding Sovereign Debt & Currency CrisisThe Bitcoiner’s Guide To Yield Curve Control & The Fiat End Game Just How Big Is The Everything Bubble?Not Your Average Recession: Unwinding The Largest Financial Bubble In HistoryThe Everything Bubble: Markets At A CrossroadsTagsterms:Bondsbank of japanYield Curve

 

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