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The yen arbitrage crisis may trigger a global financial storm, and the crypto market faces challenges.
Japan's Financial Storm: Where Will the Crypto Market Go?
In the face of a sluggish market and electoral pressure, politicians often choose to print money and manipulate price increases. U.S. presidential candidate Harris may face a similar situation, needing to deal with the potential global financial crisis triggered by the unwinding of yen carry trades.
Japanese companies have been engaged in large-scale arbitrage trading for a long time, borrowing low-interest yen through the Bank of Japan's loose monetary policy to purchase high-yield foreign assets. The scale of these trades is enormous, reaching 505% of Japan's GDP. However, the recent excessive depreciation of the yen has raised inflation concerns, and the Bank of Japan may be forced to withdraw from such trading.
Disorderly liquidation may lead to a sharp rise in Japanese government bond yields and bank reserve interest, resulting in significant interest expenses for the Bank of Japan. At the same time, Japanese companies may sell off foreign assets on a large scale, causing global stock markets to plummet. The USD/JPY exchange rate may rise to 100, and the Nasdaq and Nikkei indices may experience substantial declines.
This situation will severely impact the U.S. economy and government finances. To avoid a crisis, the U.S. government may conduct covert assistance through methods such as central bank currency swaps. Specific operations may include:
This operation can ensure a smooth transition while increasing the supply of dollars and driving up the prices of American assets.
For cryptocurrency investors, it is necessary to weigh two opposing forces:
Observing the relationship between Bitcoin and the USD/JPY exchange rate can indicate market expectations. If Bitcoin shows a convex trading pattern, it may signal an upcoming rebound; if it exhibits correlation, further declines may still be needed.
Overall, the coming months will be a critical period for determining the returns of this bull market. Investors need to exercise extra caution when using leverage and closely monitor their positions to avoid liquidation.