1. The impact of Japanese yen arbitrage funds on the market
Recently, rice prices and supply shortages have emerged in Japan. Several factors have led to rising rice prices and tight supply. Extremely hot weather has led to a decline in rice production, while the resumption of tourism has led to a sharp increase in demand for rice from domestic and foreign tourists. The earthquake and two typhoons have triggered people's hoarding behavior, exacerbating the rice shortage.
In response to natural disasters, many people began to stockpile rice, and logistics delays during Japan's traditional "Obon" holiday further affected supply. The Japanese Ministry of Agriculture has promised that the supply situation will gradually improve with the launch of new rice in September, and called on the public to remain calm and avoid panic buying!
1. This brings additional inflationary pressure to the Bank of Japan, forcing it to reassess the degree of tightening or easing of monetary policy. As an important part of CPI, the rise in food prices will directly affect inflation data.
2. As the rice disaster affects short-term inflation, although the Bank of Japan may tend to maintain low interest rates to support economic recovery, rising inflationary pressure may force it to consider raising interest rates.
The expectation of continued interest rate hikes in the yen has been strengthened, and the US dollar is about to cut interest rates, which will continue to lead to a reversal of yen arbitrage funds (the last time the global financial market fell sharply was due to the reversal of arbitrage funds, and the bitcoin price plummeted to 49,000 US dollars). Perhaps the second collapse is on the way...
The scale of yen arbitrage funds is about 15,000 US dollars. Last time, almost 10% of it went out, which means that nearly 90% of the money remains in various global markets. Of course, the most yen arbitrage funds go to the US market, so this directly affects assets denominated in US dollars.
(As for the principle of Japanese yen arbitrage funds, I have written about it in my previous post. You can check it out. Only if you understand the principle can you understand this article.)
2. Outlook and impact of US dollar rate cuts
Last week's non-farm data was mild. After the data came out, the market's bets on a 50 basis point rate cut were greater than those on a 25 basis point rate cut. Based on the current situation reflected by the US economic data, the market is targeting a 50 basis point rate cut in September. If a 25 basis point rate cut is considered below expectations, a 50 basis point rate cut is in line with expectations.
The current wave of the U.S. stock market has basically reached its peak, unless the interest rate is cut by 75 basis points (a rate cut that exceeds expectations). If you want to judge the trend of the U.S. stock market after the rate cut, you must first understand the core factors of the previous rise.
There are two key factors that have contributed to the rise of the US stock market.
First, high interest rates (money flows to the U.S.); second, the war in Europe drove most financial capital to the U.S. Finally, speculation on the expectation of a rate cut is just an expectation guide and cannot be considered a core factor, after all, real money is needed to push it up.
On the one hand, they used the war to drive these financial capitals to the United States, and on the other hand, they used high interest rates to attract money to the United States, which was a form of coercion and inducement. Then they used ChatGPT to tell a good story. Although a large amount of money flowed to the United States, it mainly flowed into a few technology companies. In addition, the guidance of the expectation of interest rate cuts continued to push the US stock market to new highs.
Based on the above logic, if the US dollar starts to cut interest rates, can the US stock market continue to hit new highs? The answer is no, unless the interest rate cut is extremely expected, which will cause the US dollar to depreciate too quickly and funds will flow out of the US market. Therefore, if the US dollar starts to cut interest rates, the US stock market is likely to collapse. Once the US stock market experiences a sharp correction, it means that the money-making effect of the US dollar market has subsided, which will lead to a large outflow of Japanese yen arbitrage funds. The decline of the US stock market will be exacerbated on the basis of the original decline of the US stock market. This is equivalent to a spiral decline, an epic collapse, and you will be dizzy. Then can Bitcoin, which is also an asset denominated in US dollars, remain immune?
If you understand all the logic above, do you still think Bitcoin will experience a bull market if the US dollar interest rates cut?
My personal suggestion: Use 2-3 layers of positions for short-term trading. Don’t think about the unilateral upward trend of a full-position structure. It’s still early. Wait until the market adjustment is over or until the U.S. stock market has an epic crash to release the risks!
