Japan stocks plunge as much as 7% as Asia shares extend sell-off
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It's caused by the fact the bank of Japan put up their interest rate by 0.25% last week? The second rate hike in years.
Japanese are extremely cautious and change isn't something they deal with on a frequent basis (Japan moves very slowly) so I think this freaked people out. I guess it might signal the end of the government prioritizing corporate profit over the well being of the populace, at least for a few years? Low interest rate, means the Yen would weaken further, which is great for major Japanese companies who deal heavily in exports. Any sign of this changing and it looks like investors run for the hills.
What else could be the cause ?
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5 days ago the BOJ upped their interest rates, and you think this is a coincidence or something to do with WW3?
I feel like if this is your level of analysis for the entire country you're not going to have that many insights beyond "interest rate movements matter more".
There's a lot of economic difficulties right now in Japan due to high costs and a stubbornly weak yen. Of course it's dangerous to make quantitative arguments with qualitative facts, and it makes it hard to counterbalance the above with a statement like "the weak yen helps exporters". But if we're going off of vibes, a lot of people in Japan are struggling with worse buying power, downstream of an economy that needs to import a lot of raw materials... and that can cause pressure.
And combining that with the tech news in the US... well... at least as a narrative there's a lot to say!
I'd love to hear something more quantitative though. At the end of the day this all _might be_ vibes, but at one point the economy has to be somewhat linked to something a bit real, right?
There is almost zero concern for the populations economic prosperity and there is no political opposition. This isn't a "vibe" this is fact. If you go far back as the 90s economic collapse, most of it was ultimately caused by the mingling of politicians being executives of the banking sector and ultimately looking after their own interests. Rather than doing the right things to fix the situation then, the government did the wrong things.
It's really sad but your average Japanese citizen has very little interest or idea about politics and policy and the population and the country suffers greatly because of this.
Democracy isn't in their DNA, it was imposed.
I will tell you though, the "vibe" here is, things aren't good, they just haven't worked out they're allowed to blame the government for poor monetary policy yet. Which IMO is what the government is starting to worry about. Personally, I don't think much will manifest from this, and Japan will just continue to slip backwards while the major corporations are taken care of.
Vibes do matter when it comes to the share market, clearly.
Japan has been an effectively ”managed” democracy for the entirety of the postwar period, so I find this argument to be unconvincing. In the postwar period, the ruling LDP party was assembled by U.S. intelligence services from a mix of war criminals and far right business leaders and funneled millions of dollars and provided other forms of support for decades. There was widespread unrest as a result of this up until the early 70s, where the tensions around America’s use of the country as a FOB for the Vietnam War came to a boil and state police and security services engaged in widespread violence and crackdowns, ANPO was reauthorized, and it was demonstrated that no, actually, things will not be allowed to change. From this point on, most Japanese people became increasingly disengaged from politics because they correctly determined that their votes and protests did not matter, except to the extent that they reinforced the status quo.
> Democracy isn't in their DNA, it was imposed.
Separately, your depiction of the imposition of democracy is also entirely incorrect and ignorant of history. Japan had one of the most politically active and engaged populations in it prewar period, but this was strangled by its ruling elites because popular political movements were almost universally left wing. The perfect example of this was that the expansion of universal male franchise in response to widespread labor unrest was paired with the outlawing of left wing political parties.
Young people have very little chance to enter into politics or gain any traction at all. There is almost zero chance a 75 year old will vote for someone in their forties.
Combine that with the natural tendency for some to a lot of corruption among politicians and it's just a perfect storm of stagnation, corruption and vested interests, there is absolutely no US involvement required.
this is an aside but the 1889 constitution had democractic components. Turns out a military coup stops democratic progress for a while. Japanese popular participation in politics has a lot of dimensions to it, including popular uprisings and authoritarian pushback by the government (including post-1945)
I've also lived in Japan for a while, and I've always found any sort of argument around the different nature of Japan based in "people be different" to be unsatisfying.
Usually you can dig just a bit more and find very straightforward material explanations for people's behavior. Or even at worst the same kind of behavior you see everywhere, just shifted around in intensity a little. Maybe this is too nihilistic but sometimes there are less magical explanations (like not caring about interest rates being downstream of them being near 0 percent)
I've also lived in Japan for a while, and I've always found any sort of argument around the different nature of Japan based in "people be different" to be unsatisfying.
I'll give you a simple real world example. The other day I left my wallet in a bag on a towel rack at the gym, my wallet was visible.
I was mid workout and I didn't want to go back to get it. Honestly, knowing Japan well enough, I just left it there , and sure enough, when I got back, it was still there, not a single dime taken. Thieves exist here, but they're the exception, not the rule.
I would never do this in any other country. Tell me that's familiar to anyone living in the US.
So no, I'm not at all surprised by your story about the wallet, and I don't think most people would be. (To be honest I wouldn't be surprised if the same thing happened in the US either – it's not like everyone in the US is a criminal and all unattended wallets reliably get stolen.)
I have personally only heard one, I repeat one person criticize a politician in my entire time being here, can you believe that? He was a politician himself :)
The only other time I remember there being some suspicion about politics was after Abe's assassination, there was some conspiracies going around about how Korea is running the government because of his affiliations with a Korean cult. Even then, everything I heard was radically civil.
If this stock market and currency collapse was in the USA, you could imagine the discourse around it right?
I'm sorry but there is a real stark difference between cultures and the effect it has on the democratic process and therefore the urgency in which a government would react to negative public opinion. In this case, In Japan the government is almost always siding with big business, because why not? What will happen? The LDP will be removed?
The government in Japan is practically authoritarian at this point, they have no opposition, they're not going to adapt very quickly for the sake of worrying about the polls. Also worth reading about is Japan's "online defamation laws" which are also pretty dystopian in my opinion.
These are not mutually exclusive categories.
I would. There's not even any cash in my wallet and I was pickpocketd in broad daylight (I'm not exactly exuding "rich dude" so I'm an odd target). I'm just lucky I had an apple tag in it and the thief ditched it in the bathroom when they assumedly saw it (before I activated it).
Even if there was nothing in the wallet, I wouldn't be surprised if my unattended wallet was shuffled, drop, and probably dripping wet when I came back. Part of why I switched to a metal one, actually.
So am I correct that it was supposed to work like the following:
- Borrow JPY at a low interest rate
- Convert to USD
- Buy stocks
- Sell stocks (ideally with profit)
- Convert to JPY
- Pay back JPY loan (which had a low interest rate, leaving more profit)
For this to work the JPY interest rate had to remain low and the yen had to remain cheap, both of which are now no longer certain which is exacerbated by investors cutting their losses en masse making the yen more expensive (and maybe increasing the effective interest rate as well?).
Things are not looking good right now. Korean markets already hit the circuit breakers tonight.
https://www.reuters.com/markets/currencies/boj-shift-gives-y....
Can you say more words about this?
I've googled, and it looks like the Corporate Tax Rate for Japan (30%) is higher than the US (21%), and basically all the other developed countries (mostly around 25%), so from that it seems like it's prioritizing corporate profit less than other countries.
My image of Japan is that it has well-functioning social services (healthcare and pension which are working, despite a largely aging population), that it has generally high standard of living and invests in infrastructure, and that corporate profits are quite low compared to other highly developed countries.
It's also "common knowledge" (thought possibly wrong) that Japan's CEOs are paid less than those of, say, the US.
In what way does the government prioritize corporate profits more than other governments?
How has the government been intentionally weakening the yen? Zero interest rates? Was the US doing zero interest rates a ploy to weaken the dollar?
Have they specifically said they're trying to weaken then yen?
This really sounds like it's ascribing too much control and intention to the japanese government to me, when in reality hanlon's razor seems like it might apply to me
Personally, I didn't say the government is "intentionally" weakening the yen, but when the yen is weak, the people who "matter", don't complain or try improve the situation because it's good for exports. If the biggest companies in Japan are happy, I'm sure those who keep them happy are well looked after too.
If you care about a poor old lady in her house, you wouldn't want to see the price of everything go up.
Armament, foods will be the only keeping up or skyrocketing for some YEARS to come.
Completely rational in my mind.
>It's caused by the fact the bank of Japan put up their interest rate by 0.25% last week? The second rate hike in years.
Certainly connected and related. They did the opposite of what they should be doing, but why didnt it crash in march? This is certainly not the whole story.
Why would a 0.15% increase to bank rates in Japan cause all of crypto to crash the same?
Also, why did lockheed martin just do a 52 week high? All rational.
Here's a NYT article about the Yen Carry Trade unwinding... In October 2008.
To be deflated tomorrow morning around 9AM
Curbs kick in around 9:00:01
Home price to median household income ratio is at all time high - current generations have to work almost twice as long to pay a house, compared to their parents.
S&P price / earnings ratio is around 27 now and it's been above 20 pretty much all the time since late 90s.
In the past it was hovering between 10-20 usually - here is a chart: https://www.multpl.com/s-p-500-pe-ratio
We have huge companies (the famous MAG 7) with PERs above 30. Given their scale, it's pretty much impossible to grow enough to reduce this PER significantly, unless we discover another planet with eager customers, or solve poverty worldwide. So while they do make a lot of cash, if you were to buy the whole business, you would need to wait 30 years for it to pay back for itself...
I know people stopped thinking like that, and just hope the 'price will go up' and there will be a greater fool willing to buy even higher. But at some point, the music will stop, although nobody knows when though. And if you look at the history of when the music stops for the markets, it's not pretty.
If there's enough capital built up and few enough opportunities, the per can go arbitrarily high.
The singularity? The bad things you are thinking about doesn't come from assets being cheap, they are flaws that causes the asset to be cheap for other reasons. All else being equal it is better when things are cheaper.
If I am a small scale fisherman from a pier, I might be happy to sell my business for one year's revenue. The pole only costs $200, and the vast majority of the value is created through my time and labor. I'll be happy to recieve my annual earnings of say $20,000, sell you the business, buy a new pole and see you out on the pier tomorrow.
Inversely, if I run a semiconductor Fab that billions of dollars in construction, the situation might be the opposite because there is a vast amount of value tied up in the infrastructure that is not represented in my earnings number.
This is a good example, imagine having to spend $200k just to get a fishing pole? That isn't a good thing, that is asset inflation, cheaper assets is better. Many modern evaluations are on that level, you pay a ton and get very little.
In theory maybe we could have enough capital to get it arbitrarily high but that isn't remotely the situation we're in right now. Globally we have a couple of billion people who need more stuff and in the Western economies we are facing a concerning prosperity problem (the political situation seems to be flashing bright red lights at us and we're being out-competed by Asia). Nothing here is screaming excess capital. If anything we seem to have some serious capital misallocations playing out (my slogan for the month has been China seems to have built >1 US real economy in the time it took the US to build 0 new US economies - you can't tell me the US is efficiently allocating capital with results that bad).
Questions of capital allocation of course depend on what variables you consider available for change. To me it's not at all clear that there are excellent investment opportunities available in the West which are being overlooked
And I don't think the US is growing at all. The energy picture and GDP/M2 [2] both suggest it is treading water at best although the situation is hopefully a little better than those timeseries suggest since there should be some efficiencies from better tech.
But the political situation to me is the most telling. We shouldn't be seeing the sort of slow-motion collapse of the polity that we are in the US unless there was also serious slow-burn economic pressure.
EDIT I can't decide which follow up comment to respond to so I'll just put it here: The energy efficiency argument isn't really valid - improvements in energy efficiency tend to cause usage to increase; it is a textbook case of Jevons' paradox [3].
[0] https://ourworldindata.org/grapher/primary-energy-cons?tab=c...
[1] I have actual arguments, but I don't think it is controversial so https://wtfhappenedin1971.com/ gets the point across.
As a contrary example, we might well see energy usage massively surge here in the short run due to generative AI. And at this point there’s not much evidence there’s actually much real GDP value creation yet in any of that at all.
China's graph looks substantially different because it started from an extremely low base living standard.
And I don't think the investors are confused by the situation; I mean, I know about it. I'm an investor and I'm claiming the trend is so big I can spot it from more than a continent away. ~40% of the US economy is government spending and there is a central planning committee that was publicly committed to keeping interest rates at 0% up until about 2 years ago which, funnily enough, makes it damn hard for rational people to make their voices heard on where money should go. The structurally important thing since '07 is positioning to be in the path of government largess and to be near the front of the queue for bailouts when the losses are realised. That isn't an environment where efficient capital allocation is possible.
Since efficient capital allocation is probably impossible, I don't expect it to be happening. It doesn't seem to be happening either, there are obviously opportunities, there is a huge and increasingly upset political constituency in the US who are screaming that the current situation isn't working for them.
What is the investor ROI for a typical homeless person?
Are you claiming they hate homeless more than they like making money?
>Since efficient capital allocation is probably impossible, I don't expect it to be happening. It doesn't seem to be happening either, there are obviously opportunities, there is a huge and increasingly upset political constituency in the US who are screaming that the current situation isn't working for them.
I think you are conflating efficiency of allocation and the availability of opportunities and rules of the system. Investors are allocating as efficiently as they can given the investment opportunities available.
There are are huge policy problems preventing the better opportunities. Central planning of the interest rate and 40% government spending is not an allocation selected or determined by the market, it is a policy choice.
Markets operation within the rules and incentive established by policy. What you are calling market failure is policy failure.
> What is the investor ROI for a typical homeless person?
High? They're in a terrible negotiating position so anyone who can get them a better job & lifestyle can probably extract usurious profits. Finding and mobilising pools of cheap labour is one of the more reliable paths to prosperity. Market-driven capitalism is a heartless, brutal and effective machine for taking people like that and pushing their living standards up.
I doubt it'd be easy to do, but California's housing market happens to be a very obvious example of capital allocation failure right on the doorstep of the likes of Google.
There is no option to allocate the capital to make money. That's why I think the problem is lack of options,not allocation. Allocation failure means a failure of investors to select an available option.
That seems to be a weird understanding of capital allocation to me and my follow up if I'm reading you right is how would you describe a failure of central planning? They have capital, they misallocate it and get terrible results relative to the free market. Assuming that isn't capital misallocaiton to you, what is it?
It is hard for me to see how you'd even have a concept of capital misallocation that isn't implicitly "relative to a free market". Otherwise it'd be extremely challenging to even detect it even if capital was being deployed in a horribly stupid way.
[0] Noting that there are only administrative differences between the tax office taking $1 and spending it on something vs. the legislature telling someone that they have to spend $1 on the thing and that line of logic means that the state could implement its policies by directing investors.
no, and I dont see how that follows at all. I think the opposite is more likely true due to the lack of markets. End stage communism is stateless (but that is a tangent).
If you have a single investor/state and law says exactly where the money goes, I would say that low capital efficiency is a policy failure, not a failure of the market to allocate.
I think this comes down to confusion of what a market is. A market has private buyers and sellers making exchange.
I grant that you could have a poor capital allocation by a government. I think the part that I vehemently disagree with is calling that a "market misallocation".
It isn't important but if you can point at large community who uses capital allocation in that sense I'd be interested to know it. It seems like a weird usage to me because it would seem to imply that a fully (or even heavily) planned economy either doesn't have capital or don't allocate it; both flawed implications.
> I think the part that I vehemently disagree with is calling that a "market misallocation".
I didn't. I've been quite specifically talking about US government policy causing capital misallocations. The US bankers are generally very keen on the idea of getting richer and the US wouldn't have the sort of real metric stagnation it has if the policy settings weren't visibly stupid. Indeed, even then the market has attempted to reset the situation multiple times (politically interesting examples are '07, introducing Bitcoin and SVB's failure) and generally been stymied by active interventions to keep incompetent investors wealthy.
It seems like I do agree with your assessment of government policy, but I still dont get where you were going with the communist thing.
Of course. Never said they don't? What I'm saying is not new it's perfectly ordinary.
Widely distributed buying power/equality is a prerequisite for market efficiency. Proof: If all buying power is concentrated in a fraction of the population, the market will not consider the needs of the rest, regardless of how cheap their needs would be to satisfy and how grave their needs are. That's not efficient.
In practice there's an empirical question how much equality you need to have a market that's efficient enough.
They could all be die and it might not impact market efficiency. Market efficiency is a technical term, and I think you are using it for something completely different. It has nothing to do with equality, or satisfying the masses.
What is your definition?
1) What you can change in the "could have" hypothetical alternative. Are the laws different in the hypothetical? Is human nature different? The way I see it, criticism of market efficiency is measured using the existing rules. If you must change the laws and policy, in your hypothetical, that means your Policy is what is driving the inefficiency.
2) How you measure utility. Are you measuring dollars changing hands? are you measuring national GDP? Are you measuring some sort of national happiness index?
It sounds like Im speaking in financial terms, and you are measuring utility using more on the happiness scale
It's a "know it when I see it" kind of utility measurement. Probably closer to a "happiness index" than GDP. It's fuzzy but I don't think that makes it meaningless. I think most people have a similar idea of "better utility" (not exactly the same, similar). For example, what's most utility: New boat for Bezos or dental care for 1000 kids?
In any case, some kind of utility measure is necessary to determine when markets are efficient or not. If the measure excludes people just because they have limited means then few would call that a good utility measure. If the utility measure doesn't exclude people with limited means then markets can only be efficient when means are relatively well distributed.
I'd like to read more about that because it feels like that could provide insight into politics/policy more broadly. For example, if someone came up with a solution for the housing crisis but it would take more than 10 to 20 years, would people view that as effectively no solution at all?
If it made things worse short term, absolutely! Rent control is the opposite, it makes things worse long term but better short term, and people love to vote for that, so we already know the answer.
In general, rent control regulation is SUPER, SUPER BAD and absolutely will turn everything to shit.
However, local conditions and the particulars of what is being called rent control matter A LOT.
The only rent control laws I'm intimately familiar with are those in San Francisco. I'm also somewhat familiar with the history that caused such regulations to be enacted in major cities in the state.
About the regs in SF:
* The rent control regulation in SF is more-correctly called "rent stabilization". Once all original tenants (termed "master tenants" in the regs) on the lease move out, the covered unit can be rented at any price. Until all master tenants move out, the base rent for the unit may only be increased by 60% of the Urban CPI in the Bay Area. Many other costs may be passed through at 100%.
* SF's Rent Stabilization only applies to residential buildings built BEFORE 1979. [0] Construction NEWER THAN 1979 IS NOT COVERED by Rent Stabilization, unless the owner of the building chooses to be covered by it. [1] Commercial non-residential buildings are NOT COVERED by SF's Rent Stabilization.
* It is super duper not permitted for a particular human to be a "master tenant" in more than one apartment. If you do this, are discovered, and someone complains to the Rent Board, you will quickly find yourself paying whatever the landlord cares to charge for all of those apartments.
About the history of Rent Control in California:
Two words: "Proposition Thirteen".
Wind back to the mid-to-late 1970s in California. Rents are spiraling upwards, out of control, and have been for years. Folks are getting extremely worried about being able to pay the rent. Proposition 13 is proposed as a solution... landlords SWEAR that they can't do anything BUT increase the rents because property valuations are SOARING. If only Californians could vote to limit annual property tax increases to no more than 2% per year (unless that property changes hands... except for a "few" exceptions), then landlords would finally be able to keep rents in control. Mix those promises in with a few commercials and full-page ads about "How will granny keep her house if she can't pay the tax man??" and Prop 13 passes.
Well, some time passes and rents keep spiraling out of control. Turns out the landlords were full of shit. So, to match landlords' new, shiny "Property Tax Control", major cities enacted various Rent Control and Rent stabilization ordinances.
Two things I super want to point out here: Prop 13 applies to ALL property in the state, residential, non-residential, commercial, and non-commercial built at ANY time. SF's Rent Stabilization regs ONLY apply to residential property that's being rented to tenants, and ONLY buildings built before 1979. SF's rent control regs are absolutely NOT why SF has been failing and continues to utterly fail to build even a tiny fraction of the housing required to meet local demand.
[0] Nor does it apply to buildings being used as single-family homes, nor to many-to-most condominiums.
[1] It's my understanding that this has happened exactly once. Trinity Place is a very large apartment complex. In order to build it, a much smaller motel-style pre-1979 apartment building with like ten or twenty apartments needed to be demolished. The owner of the land and the building reached an agreement with the city to forever subject ten or twenty units in his new building to the Rent Stabilization regs so as to provide the residents of the motel-style building (and any and all future tenants of those units) with 1:1 replacements for the Rent Stabilized apartments. All other apartments in the big-ass complex are "market rate" apartments.
Prop 13 wasn't driven by landlords, it was driven by higher housing prices forcing out retirees. The two aren't really connected. Prop 13, enacted in 1978, actually set property value at 1976 levels, so property taxes didn't just stop going up a lot, they went down.
And the timing doesn't really work out. Prop 13 was passed in 1978 and rent control was enacted in SF in 1979. If anything, Prop 13 helped drive rent control as landlord's no longer could claim that property tax increases would bankrupt them.
That's part of it, yes.
As I mentioned:
> Mix those promises in with a few commercials and full-page ads about "How will granny keep her house if she can't pay the tax man??" and Prop 13 passes.
> And the timing doesn't really work out. Prop 13 was passed in 1978 and rent control was enacted in SF in 1979.
What? A ~year is very reasonable amount of time to discover whether landlords' promises of reining in rents because of the property-tax-payment-control they just got gifted were genuine. That's not something you're going to find out in a month or a quarter.
The legislature doesn’t move that fast.
Would you rationnaly evaluate the situation and say 'yeah, that's fine, it will be better for my kids' or rather feel a very justified anger that bad politics effectively cost you ... the ability to buy a place to live during your, checking notes, only life you have on this earth ?
Another way to look at it is that a home is the primary large piece of property that most people own. Therefore, owning a home gives people a stake in a capitalist society.
What both of these are getting at is that if common people are unable to buy a house then they are less likely to feel obligated to support the rules that society is built upon.
If you need can afford a house but it take 30 years for a return, then most people are still happy.
Inversely, If it is a 10 year ROI, but you cant afford it, they are unhappy.
If you look at the US housing market of the last decade or two, the issue is closer to the 2nd case than the first. Base price is out of reach for most, but those that get have a excellent returns.
I was extremely jealous when I couldn't by a first house but my friend who could pay 1 million did so, only to sell it 2 years later for 2 million. He did it again and now his current house is in the 6-8 million range, and I'm just getting in the market.
> For example, if someone came up with a solution for the housing crisis but it would take more than 10 to 20 years, would people view that as effectively no solution at all?
That does sound like it'd be a politically hard sell. People generally expect governments to implement their solutions inside a decade. Not an entirely rational expectation, but nonetheless.
To flip the burden of proof, 30 year ROIs imply that people are routinely sitting down and having serious conversations where they expect to make their money back over 30 years assuming literally nothing goes wrong. Any bankruptcies and they are in the negatives. Any stock price drops and they are probably in the negatives. If you believe that is the norm where people are comfortable, I hope to see you in the conversation next time people on HN attack stock market investors for being too focused on the next quarter!
People are too zealous about the virtues of market economy to see plain truths staring them in the face. The China example is excellent. There's no lack of investment opportunities with huge roi (industrializing, infrastructure, etc parts of the world not having western living standards) but the market is unable to prioritize them above hype and incremental improvements for already well off populations.
Instead, I think there are some very real barriers to returns in these locations making them much less profitable and worse investments.
It's not a conspiracy, just bad economics.
It is bad policy which leads to bad market incentives and undesirable equilibrium.
How to mismanage your real estate sectors even to a higher extent than Western countries were ever able to?
What you say is technicaly true and in a rational simulation it could even work like that. But humans are not like that.
But stocks are hype-driven so it doesn't matter.
IF the P/E is 40 and inflation is 10%, you will break even in 17 years, not 40 years.
If P/E is 20, you break even in 12 years.
Inflation has a similar but more dramatic impact on housing because you can leverage your investment with the loan.
For future inflation. It was relatively low between 2010 and 2020 and has been reducing at a fairly fast pace recently. It’s not obvious it won’t go back to the baseline.
I am just explaining how inflation influences p/e interpretation.
Everyone has their own model of what they think inflation will be in the future, which they use to judge PE and roi.
After the economy rights itself, governments should be eager to unwind their positions, but this doesn't always happen.
The Fed has been doing some quantitative tightening for a while, and if we're now entering a proper recession, we'll soon get to see if they reloaded enough bullets.
An everything bubble would basically be inflation which wouldn't justify moving any assets. You only need to move between assets when one is inflated relative to another (e.g. stock vs real-estate)
- more competition for capital leads to cheaper shares (hence the lower share price)
- and larger desire for foreign investment / less capital outflow to higher yielding / more capital scarce markets
- less capital outflow means fewer yen going out to be transacted for foreign currency (lower forex yen supply) and more investment going into the economy (higher forex yen demand)
- lower supply, higher demand, holding dollar steady (partial equilibrium) leads to higher yen relative to dollar
Carry trade is borrowing money at low interest rate (yen) and converting it into safe money yielding more (dollar). This is not as trivial as borrowing at 0% and investing at 5%, you also need to construct hedges against currency moves (to a certain point), so the profit margin can be low.
While 0.2% was a small change, a lot of funds who borrowed yen and converted into dollars started losing money. They wanted to close some trades so needed to buy yen (since they borrowed in yen and have to repay in yen to close the loan). This made yen rise and positions of more funds (who now have to repay more dollars to close yen loans) even more unprofitable as their currency hedges become very expensive. So more funds wanted to close carry trade positions. And so on.
This is not the only process that drove yen up, but it's a significant one.
The BoJ chairman said in the Q&A afterwards that he sees them raising rates above 0.5%, possibly by year end.
The BoJ is also cutting back on the number of government bonds they're buying by half, from 6 trillion yen to 3 trillion yen each quarter.
The yen strengthened a lot in the past 2 weeks, from $1 / 160yen to $1 / 143 yen. This likely triggered a lot of margin calls, exacerbating the drop.
Basically, it was an aggressive and unexpected move.
> If Ueda's goal was to change his dovish image, he was clearly successful. "He sounded very hawkish today," said Hideo Kumano, chief economist at the Dai-ichi Life Research Institute. "He has made the market think more rate hikes are on the way."
> Only 26% of market players expected a rate rise, according to a survey of 181 bond investors conducted by Nikkei affiliate QUICK on July 23-25. Most investors expected a rate increase to take place either in September or October.
source: https://asia.nikkei.com/Economy/Bank-of-Japan/Bank-of-Japan-...
I’m surprised people aren’t factoring the population collapse in even more.
https://rpc.cfainstitute.org/en/research/cfa-digest/2015/10/...
I also listen to some trustworthy YouTubers like Plain Bagel and Ben Felix.
Disclosure: am a coiner.
Live updates: ASX plummets more than 3pc in worst two-day performance since 2022 after recession fears spook Wall Street
https://www.abc.net.au/news/2024-08-05/asx-markets-business-...