If the Fed cuts interest rates by more than 50 basis points, the market will experience a large-scale decline in the short term.
The core reason lies in the importance of the USD/JPY exchange rate. Japan's interest rate meeting is on the 19th and 20th.
The direction of the USD/JPY exchange rate will be determined in the next few days.
>>>> Simply put, the yen carry trade is a financial strategy.
Investors borrow low-interest yen and then convert them into high-interest currencies (such as the US dollar) to invest in assets with higher returns to earn interest rate differentials.
Due to Japan's long-term ultra-low or even zero interest rate policy, the cost of borrowing yen is extremely low, and the yen is relatively stable. In addition, Japan has a large economy and high market trust.
[If the Fed cuts interest rates significantly and the yen interest rate rises]
Obviously, due to the narrowing interest rate differential between the US dollar and the yen, the interest rate differential income of the carry trade has decreased.
Therefore, the attractiveness of the carry trade has decreased, and investors have begun to close their positions and repay their yen loans, resulting in [capital reflux].
At the same time, investors buy yen to repay loans, resulting in an increase in demand for yen, and the yen appreciates against the US dollar, resulting in [increased demand for yen].
The depreciation of the US dollar and the appreciation of the Japanese yen are obvious, and investors need to sell US dollar-denominated assets, such as stocks and bonds, to close their positions, leading to a market decline.
At the same time, [a large number of investors' liquidations may cause market liquidity problems and increase volatility and risk in the financial market].
Although Bitcoin's self-narrative is a safe-haven asset, Bitcoin still fell significantly during the last round of Japanese yen rate hikes.
The focus of the current market situation is:
For investors in this cycle, this decline may be the best foreseeable buying opportunity for mainstream crypto assets such as Bitcoin and ETH.
