bank-of-japan-raises-cap-on-yield-curve-control – Bitcoin Magazine – Bitcoin News, Articles and Expert Insights

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On the evening of December 19, the Bank of Japan (BOJ) announced that it had raised its ceiling on 10-year bond yields from 0.25% to 0.5%, while keeping short-term interest rates and long-term unchanged.

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The cap at the 0.25% level had suppressed global bond markets with the use of an unlimited money printer for Japanese debt. This in turn caused the yen to deteriorate significantly against the dollar, as the BOJ used its huge stack of Treasuries to occasionally defend the currency against speculators.

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While absolutely massive in its shift in market dynamics, the move leaves the BOJ well behind its peers in terms of key rates, which is mainly due to Japan’s demographics and its debt-to-GDP stats. .

This rise in the yield cap, unexpected by economists, caused an immediate jump in the yen and a fall in global government bonds, sending shockwaves through global financial markets. It also led to a sharp rise in Japanese bank stocks as investors anticipated improved earnings from financial institutions.

Bank of Japan Governor Haruhiko Kuroda laughs as he hikes rates for the world.

As the BOJ tightens its policy, Japanese debt becomes relatively more attractive and the yen appreciates. This causes rates to tighten in US markets, but causes the dollar to weaken against foreign exchange markets.

While bond yields remain at high levels well above recent years, asset valuations based on discounted cash flows are falling. As many market participants await a return to 2021-like conditions for various financial markets, it is essential to understand how developments in debt markets affect all other liquid markets and relative valuations.

A historic shock to interest charges is occurring alongside the largest absolute decline in asset prices on record. We expect turbulence to resume only from here.

While the bitcoin market has already seen massive deleveraging, the “pain trade” (as many believe) could simply be a long period of sideways consolidation as the legacy market dominoes begin to fall with increasing frequency.

We expect the next secular bull market to be driven by accommodative monetary policy responses to the conditions currently developing. Global financial market liquidity conditions, solvency and asset price valuations are likely to fall further from here – until fiat money lords decide to start depreciating. For better or worse, that’s the name of the game on the fiat monetary standard.

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We are firmly in the third stage. Stable guys.

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