There's this opinion. The opinion that the U.S. should raise interest rates

There's this opinion. The opinion that the U.S. should raise interest rates

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-The yen's surge in value and the "Ncarry Trade Clearance" phenomenon-

The Japanese yen is strengthening these days.

The exchange rate, which soared to 161 yen against the dollar, is "152.82 yen" as of July 31, 2024.

Then, why does the exchange rate of the yen in Japan plunge so sharply, that is, why the yen's value is soaring?

That's because the Bank of Japan (BOJ) has been steadily intervening in the market so far, preventing the exchange rate from soaring, but the main reason is the recent Fed rate cut.

If the Fed cuts its benchmark interest rate, the U.S. dollar will weaken and the Japanese yen, which is considered a safe asset, will strengthen.

The dollar value of the US dollar, which is the key currency, fluctuates according to the "U.S. Dollar Index," and the proportion of currencies in six major countries in the world that affect the dollar value is as follows.

Euro (57.6 percent), Japanese yen (13.6 percent), British pound (11.9 percent), Canadian dollar (9.1 percent), Swedish krona (4.2 percent), and Swiss franc (3.6 percent).

Therefore, the Japanese yen (13.6%), which affects the "U.S. Dollar Index," is bound to be strong.

So the Japanese yen has been strong recently.

However, when the Japanese yen strengthens like this, the concern is the "Yen Carry Trade" liquidation phenomenon.

"Encarry trade" means borrowing low-interest Japanese yen to invest in stocks and bonds around the world.

In other words, they borrow money from Japan at a low interest rate of 0% or 0.1% and invest in places that give high interest to foreign countries, buy U.S. government bonds, or invest in global stock markets or real estate.

But what happens if the Fed cuts interest rates, and the Bank of Japan raises rates?

Then, Japanese investors immediately sell U.S. government bonds and return to Japan by selling global stocks and real estate, that is, "the liquidation of the yen carry trade."

In short, the global liquidity of rice paddies will be recovered by spraying Japan around the world.

But this is becoming visible.

For example, the Bank of Japan is holding its second financial policy-making meeting today, July 31, 2024.

And the rate hike plan, which is currently considered highly likely, is to raise the policy rate from 0% to 0.1% to 0.25%.

Therefore, if this happens, the exchange rate of the yen against the dollar will plunge, and the value of the Japanese yen will soar.

In addition, if this happens, it can be seen that the "phenomenon of liquidating the yen carry trade" appears at a rapid pace.

If this becomes a reality, the asset market, such as the global stock market and the real estate market, as well as the U.S. government bond market, is expected to plunge.

Please don't be an America swept up in politics, but a wise America.

In other words, the U.S. is not cutting interest rates right now,

As I pointed out several times, raising interest rates is the way to revive the U.S. economy.