Bank of Japan interest rate hike countdown: Secure your own wallet

For ten years, I’ve honed my sword; fluctuations have their reasons. Don’t fight the bulls and bears; securing your gains is the safest.

Hello everyone, I am Tommy, a crypto economist and a trader rooted in the Ethereum(ETH)8 community for 8 years. Let me start by sharing my three trading principles: don’t trade when you’re tired, sleepy, or exhausted; don’t trade when you’re in a bad mood; don’t trade when you don’t understand the market; (When in poor condition, you can’t perform at your best, which leads to significant errors in market judgment.)

==The December 19th Bank of Japan meeting to decide whether to raise interest rates is a life-and-death line for you==

Why? Because if Japan really decides to raise rates, it could trigger a black swan event comparable to the subprime mortgage crisis, causing a global upheaval. Stocks, funds, Bitcoin, gold—all could be affected. This crisis poses enormous risks, so today I’ll analyze what you should do next. First, I want to emphasize that the Japanese yen is not an ordinary currency; it’s the world’s largest arbitrage currency. What is arbitrage? Borrowing cheap money to earn a stable interest spread—simple as that. Over the past 30 years, Japan has maintained zero interest rate policies, even negative rates, turning itself into a global liquidity faucet. What does that mean? Data shows that Japan started zero interest rates in February 1992, and by 2016, it adopted negative interest rates, remaining so until March 2024. During these 25 years, if you borrowed 1 million yen and converted it to USD, earning 5% interest in the bank, how would you repay? Repay in yen—this arbitrage alone could make you huge profits. Do you understand what I mean? Of course, we’re ignoring exchange rate fluctuations. Many, like Japanese Mrs. Watanabe and Warren Buffett, have exploited this mode of arbitrage, accumulating nearly $4 trillion in yen arbitrage funds, accounting for about 3.5% of the global annual GDP. What do they do with this money? Invest in US stocks, Bitcoin, gold—like a 24-hour faucet—fueling the asset bubble over the past decade. You might wonder why gold has surged so much recently or why US stocks are soaring. One key reason is the zero-cost yen liquidity. This faucet keeps pouring money into the market, creating strong liquidity and causing global asset appreciation. If interest rate hikes happen on December 19, do you know what the result will be? It’s like shutting off this faucet. Recently, funds are flowing back into Japan—how? By cashing out Bitcoin, US stocks, gold—selling assets. Many large institutions use leverage to buy these assets. When they sell, the pressure is immense. What happens if liquidity dries up? Assets will be dumped, prices will plummet—gold crashing, stocks falling—this is the real scenario. Do you understand? Why is Japan doing this?

What is the reason for the rate hike? Because Japan has run out of money. Japan’s data released on November 28 shows core CPI (consumer price index) rose 2.8% year-over-year, breaking 20 years of deflation. Previously, Japan relied on zero interest rates to stimulate consumption. In recent years, the yen has been depreciating continuously. In January 2020, 1 USD was 100 yen; now it’s about 157, close to 158, hitting a 10-month low. Japan is a major importer—what happens when the yen depreciates? Importing food, oil, and other commodities becomes more expensive. With currency devaluation, imports cost more. Now, Japanese citizens are protesting wildly, and the government has to intervene. How? Intervention requires money. But Japan’s GDP was already $5 trillion in 1995, and by 2021, it remained at $5 trillion. Isn’t that funny? Three years later, in 2024, it shrank to $4 trillion—30 years of stagnation, zero long-term profits, no corporate innovation motivation, banks earning little, reluctant to lend. What does the government do? Borrow more. Do you know how much they borrow? About $9.8 trillion in US debt, which is about 265% of GDP—world’s highest. And the interest? The 10-year government bond yield soared to 1.825%, the highest since the financial crisis; 20-year bonds are at 2.853%, and 40-year bonds hit a record 3.747%. Just a one-year bond at 3% interest costs $268 billion annually—50% of fiscal revenue. In 2024, the deficit will reach $234.7 billion. That’s a snowball effect. What are you jealous of? It’s bankruptcy. It’s unsustainable. Half of the government’s revenue goes to interest payments—that’s bankruptcy. So what’s the solution? Raising interest rates to increase yields, encouraging companies to innovate and earn more taxes, banks to lend more, helping companies grow, and increasing government revenue. This creates a positive cycle. But do you know what the result of rate hikes is? Can you afford the interest? That’s why I tell you, raising rates is like drinking poison to quench thirst—not raising rates means waiting for disaster.

What about the situation over the past two years? I believe Japan will most likely do so. Choosing the lesser of two evils, they will probably raise rates. Many might say, “What’s the big deal? Japan raising rates is Japan’s own matter; it has nothing to do with us ordinary folks.” But that’s a huge mistake. I tell you, if nearly $4 trillion in arbitrage funds withdraw, how will it affect the world? Do you know? It will disrupt the global system through three chains, and none of you can escape. First, they will run out of money—actually, yen funds are like an invisible buyer of US stocks, holding over $1 trillion. You can predict: once rates rise, Japanese institutions will start selling US bonds. Currently, Japan is the second-largest holder of US debt—about $37 trillion. What happens if they sell? Bond prices will fall, yields will rise, and global borrowing costs will soar. For example, in 2023, Silicon Valley Bank collapsed due to rapid rate hikes. This time, the scale could be ten times larger. So don’t panic. Second, yen appreciation will force everyone to cut losses. Currently, USD/JPY is about 150:1; after rate hikes, it could rise to 140:1. What if you borrowed yen to buy assets? Quickly sell stocks, Bitcoin, gold—pay off debts. What debts? Borrowed yen at zero cost—if you borrowed at 156 yen per dollar, and now you have to repay at 140, you’ve already lost 10%. What does that mean? Asset prices will fall, and if you can’t repay the debt, you’ll sell more assets, prices will drop further—creating a vicious cycle. Remember Lehman Brothers in 2008? It collapsed because of leverage. This arbitrage leverage was similar back then. Third, Japan’s stock, bond, and currency markets will all crash simultaneously. For example, a 1% rate hike increases annual government bond interest by 10 trillion yen—about 60% of fiscal revenue. Someone will definitely sell Japanese bonds. If Japanese bonds collapse, the stock market will also crash. Japan will experience massive volatility. The shock will be unimaginable. Multinational companies will be affected—China has 120,000 enterprises doing business with Japan. Toyota, Sony’s stock prices plummeted, and our suppliers and export orders will be impacted. So I keep emphasizing: December 19th’s BOJ meeting is a life-and-death line. Yen carry trade is an implicit leverage in global finance—like a faucet. Once it breaks, no asset can be immune because Japan can’t sustain itself anymore.

Protecting your money is the most important. The 2008 subprime crisis and the 2015 stock crash proved that others’ risks will eventually transfer to you. So, before December 19th, don’t make reckless moves. Keep an eye on Tommy’s updates, watch my live streams, and be cautious. Surviving this liquidity tsunami is more important than anything else.