I'm posting on Monday morning this week following

last week, and I'll make sure to post it on Sundays from the owner. Since FOMC, many people have questions about the market direction, so I haven't been able to answer them properly through messages and comments. It's a little long, but let's take a look.

First of all, one thing to note is the recent strength of the yen. You might ask, "Why are you talking about the yen all of a sudden when the currency is strong against the dollar?" By the way, it rose to 915 won per 100 yen and then fell to 900 won, but the exchange rate soared once again to the mid-910 won range. The yen is strengthening against the dollar as well as against the won. The biggest reason is the Fed's policy shift. Let's take a closer look at the details.

Since Powell's surprise at the FOMC, the market has been predicting a very high possibility of a U.S. rate cut. I also think it's possible to cut next year, but what's the level of the cut? And when will the cut be? I think that's the point. But the market is seeing a cut in March, and it's saying that it's going to be lowered to 3.75% to 4.0% by six base rate cuts by the end of next year. And the interest rate on the 10-year U.S. Treasury note has come down to the middle of that, 3.9%. And if the market expects further cuts ... that is, if you see that it will cut seven to eight more times beyond six ... further declines in government bond rates would be possible. The 10-year Treasury bond rate, which was 4.15% before the FOMC, came down to 3.9%, and the interest rate was lowered by about 25 basis points.

There is no big difference in Korea, too. The interest rate on the 10-year Korean government bond was 3.52%, but the rate fell to 3.34%. It came down about 18bp. It's less than 25bp in the United States. As the U.S. interest rate came down more, the dollar's attractiveness decreased faster than that of the won. Yes. As the dollar weakened against the won, the exchange rate of the dollar fell to around 1,300 won. During the day, I even tried 1285 won. While reflecting the six cuts in the U.S., the interest rate on Korea's government bonds fell sharply. On the other hand, the decline in Japan's 10-year government bond rate was somewhat lower. It fell to 0.62% during the day, but it came back to 0.7% within a short time. The interest rate, which was 0.75% just before FOMC, went down by about 5bp.

In summary, the FOMC surprise lowered the US 10 years by 25bp, Korea by 18bp, and Japan by 5bp. Then, when it comes to the decline in interest rate attractiveness when holding the Japanese yen, it will be better than other currencies. Yes, the US interest rate is falling faster than Japan, and Korea's interest rate is also falling faster than Japan. The yen is relatively strong against the dollar or won. In the case of Japan, there is not much room for interest rates that can be lowered in the face of falling interest rates. So it should be noted that the yen has been relatively strong because it has not been lowered much.

This is noticeable even after the FOMC in November. Just before the FOMC in November, the interest rate on U.S. government bonds exceeded 5%. So if it's 3.9% now, it's about 110bp down. At that time, the 10-year Korean government bond was at 4.37%, and now it's at 3.34%, it's 103bp down. At that time, Japan's 10-year period was around 1%, but now it's 0.7%, so it's down 30bp. Which currency had the lowest interest rate drop? Yes, Japan. That's why the yen, which was pushed back to 850 won in terms of exchange rates at the time, rebounded sharply and recovered to the 910 won level.

To expand this story a little bit… Let's look back on the time when the won-yen exchange rate broke 920 won and was pushed back to 850 won. At that time, an additional increase in the U.S. benchmark interest rate could occur. Due to the mindset of Higher for Longer, 10-year Treasury yields reacted sensitively and rose sharply. Even when it rises, Japanese interest rates cannot keep up with the increase in U.S. interest rates or Korean interest rates. In this case, the yen's holding becomes less attractive, and the yen will weaken. In general, it is a market situation that reflects the long-term interest rate difference the most.

Now, if the long-term interest rate difference affects the yen exchange rate, of course, will the future trend depend on the movement of the long-term interest rate difference? If the U.S. continues to cut interest rates, the 10-year U.S. interest rate will fall further, and the Korean interest rate will also fall sharply. In Japan, where the decline in interest rates is not significant, it is possible to predict that the decline in interest rates will not be significant, which will maintain the yen's relative strength against the won. By the way, there is a catch here, too. As we will discuss later, if the Fed's interest rate cut signal was not so strong… If the market is not experiencing significant kimchi-making in cutting interest rates… The 10-year government bond interest rate, which fell sharply in anticipation of six interest rate cuts, will… Wouldn't you be very disappointed if you read two or three interest rate cuts instead of six? Then, even if the base rate is cut, there may be a problem that the 10-year government bond interest rate, which fell preemptively due to the kimchi soup, will rebound or remain at the current level in anticipation of more cuts. This will not significantly reduce the gap with the interest rate on U.S. government bonds… Then, as further interest rates in Korea are limited, expectations for a further rise in the won-yen exchange rate may slow down a little.

And it's important to look at the BoJ's policy changes. But as you can see, BoJ doesn't want to make a big difference. Even if you make a change, slowly. We prefer to proceed smoothly without any major side effects on the market, so compared to the rate of decline in interest rates in the United States, it's not a comparison itself. Yes. For the time being, the point is to focus on the difference between the 10-year interest rate in the US and 10-year interest rates in Korea and the 10-year interest rate in Japan.

We talked about the yen, and in line with this, we naturally moved on to the Fed's stance. The surprise of the last FOMC showed that all assets were rallying. In particular, the sensitivity of the Higher for Longer was high… The rebound in small and medium-sized Russell 2000 stocks, which had been limping for a while compared to other indices, was quite impressive. As I mentioned earlier, I was very moved by Fed Chairman Powell's remarks that the market was considering lowering interest rates. And I confirmed once again that my confidence was not wrong. I began to recall vividly the trend of 2019.

And in the fourth quarter of 2018, when the financial markets started to wobble, Powell came up in January 2019 and said that. Be patient. He was afraid of the rapid slowdown in growth as the financial markets faltered. And that's when interest rate increases stop, and the financial markets don't stop there. And a lot more is required of the Fed, and one of them is the quantitative austerity that was going on at the time. Powell, who immediately refused when he asked to stop it, then bowed to the FOMC and stopped quantitative austerity. At that press conference, in front of the market that wants to cut interest rates, Powell says, "I'm not even thinking about it." And then in June of 19th, he announced the rate cut with a humble look, and from July of that year, he began to cut interest rates three times under insurance. The market keeps asking Powell, who is playing the role of his grandmother, like a tiger in the sun and moon. If you stop raising interest rates, you won't eat them. If you stop quantitative austerity, you won't eat them. If you don't cut rates, you won't eat them. At least Powell threw what the tiger wanted. The tiger that received it didn't know that he was satisfied… Our tiger seems to be a "noon who doesn't know satisfaction."

The market cheers when we take three cuts from the actual dot plot. And the market is expecting six cuts right away, remembering the 19 years of victory. I ask you a question. Will the market be satisfied if the Fed cuts six times? As I gave you a hint earlier, wouldn't you expect nine cuts? Or demand that it be lowered by 50 bps… lol

And if you look at the trend of 2019, I remember that quantitative austerity also stopped. Now, quantitative austerity continues at $95 billion per month. This is very inconvenient… If it's the same as in 2019, we can stop quantitative tightening before we go into interest rate cuts. Recently, a lot of funds have been shrinking rapidly in reverse RP. Since the Treasury Department is issuing short-term bonds instead of long-term bonds.. It's probably because MMFs took out the funds they had in reverse RP and started to buy these high-interest short-term bonds. If the amount of reverse RP becomes awkward, banks' reserves may decrease from then on. Banks' reserves have not decreased significantly compared to the quantitative tightening of the past. If quantitative tightening proceeds further under the circumstances of reverse RP, then reserves may also decrease at a certain rate. Then, as the banking sector becomes difficult, it will not be able to lend a lot to the market… The real economy may suffer from a credit crunch. Then, wouldn't we need a service that ends quantitative tightening before interest rate cuts? Quantitative tightening has stopped, interest rate cuts have a jackpot. This may be the key that participants in the financial market want from the Fed right now.

So here's the question again. Will Powell and the Fed, who have taken a sharp turn in easing stance, respond to calls for a big-money rate cut and a halt to quantitative austerity? And the market participants will think that. It doesn't matter if the Fed wants to, it doesn't want to, because if it doesn't comply with market demand, it's going to have to cry and go with it because a recession can happen. And the last one is that. History proves that. So that's how the market is already pricing, regardless of whether the Fed doesn't comply with the demand, it's already been patterned of the past