Japan's Additional Interest Rate Hike: Background and Market Impact

1. The Trend of Japanese Interest Rate Hikes

Japan maintained a negative interest rate (-0.1%) for a long time starting in 2016.
Following March and July of 2023, another additional interest rate hike has been implemented.
Interest rate hike magnitudes:
- March: -0.1% → 0.1% (0.2%p increase)
- July: 0.1% → 0.25% (0.15%p increase)
- Current: 0.25% → 0.5% (0.25%p increase)
This interest rate hike marks the highest level in about 30 years in Japanese history.

2. Why Did Japan Raise Interest Rates?

The central bank's (BOJ) interest rate decisions adhere to two primary goals: price stability and economic stability.
Background of Rising Prices:
- Recent inflation rate announcement for Japan: 3.6% (well above the target of 2%).
- This is interpreted as an attempt to curb prices through interest rate hikes.
- Especially, the core inflation rate (excluding food and energy) has also increased to 3%, indicating persistent high prices.
Economic Situation:
- The Japanese economy is in the process of recovering to pre-COVID levels of 2019.
- Economic growth rate forecasts for 2024 and 2025:
  - 2023: 0.7%
  - 2024: 0.4%
  - 2025: 1.1% (expectation for slightly better growth)
- This period is deemed appropriate for an additional increase in interest rates.

3. Impact of Interest Rate Hike on the Market

Yen Carry Trade and Liquidation:
- Due to interest rate differences between Japan and the U.S., 'Yen carry trades,' where funds are borrowed in Japan and moved to the U.S., are active.
- As interest rate differences narrow, 'yen carry liquidation (money returning to Japan)' becomes more likely.
- However, since Japan’s interest rate is at 0.5% compared to the U.S. (4.5%), large-scale liquidation is not highly probable.
Exchange Rate Outlook:
- According to investment bank forecasts, the yen is likely to show a gradual appreciation.
- If the dollar remains strong, the relative values of the yen and Korean won may fluctuate.
Economic and Financial Markets:
- Even if the interest rate hike encourages yen carry liquidation, there is a greater likelihood of a temporary adjustment rather than a major market shock.
- Such adjustments will present new buying opportunities for investors.

4. Political and Global Impact

Japan's interest rate hike is interpreted as a move to stabilize the domestic economy and as an adjustment amidst changes in global monetary policy.
The timing of the U.S. interest rate freeze or cut could also be influenced by Japan's monetary policy.

< Summary >

Japan has raised its interest rate to 0.5% for the first time since 2016, entering a high interest rate era not seen in 30 years.
This decision is driven by rising prices (3.6%) and the potential for economic recovery.
While the interest rate hike raises concerns about yen carry trade liquidation, a major shock is deemed unlikely.
Global monetary policy and exchange rate changes are expected to be significant variables for Japan's policy moving forward.

Crafted by Billy Yang
[Related Articles at Next-Korea.com]
- Impact of Japan's Interest Rate Hike on the Korean Economy
- 2024 Global Financial Market Outlook

*YouTube Source: [경제 읽어주는 남자(김광석TV)]

– [속보] 일본의 3번째 금리인상. 17년만의 높은 금리시대 진입. 엔캐리 청산과 블랙먼데이 재현될까? [즉시분석]

Japan's Interest Rate Hike: Analysis of Causes and Ripple Effects

1. Background of Japan's Interest Rate Hike

1.1 History of Japan's Negative Interest Rates

2016: Japan became the first country in the world to introduce a negative interest rate (-0.1%).
From 2016 to early 2024: Low interest rates were maintained for a prolonged period.
- Reason: To overcome economic stagnation and prevent deflation.
- However, this policy led to capital outflows and the ‘yen carry trade.’

1.2 Shift to Interest Rate Hikes in 2023-2024

March 2023: First shift from -0.1% to plus 0.1% (described as a Baby Step).
July 2024: Additional interest rate hike to 0.25%.
November 2024: Due to inflationary pressures, the interest rate was raised again to 0.5%.
- This time, a more ‘aggressive’ interest rate hike than before.

2. Causes of Interest Rate Hikes: Japan's Economy and Inflation Situation

2.1 Inflation Rate

September 2024 inflation rate: 2.9% → Increased to 3.6% by December.
- Inflation exceeded the central bank’s target of 2%.
Core CPI: Core consumer prices, excluding food and energy, also rose above 3%.
- This is a primary reason forcing the interest rate hike.

2.2 Japan's Economic Growth

2023 GDP growth rate: 0.7% (somewhat sluggish).
2024 GDP growth rate: Growth slowed to 0.4%.
2025 Outlook: Growth of 1.1% is expected, making it a suitable time for interest rate hikes.

2.3 Dilemma between Interest Rates and Economic Stability

Necessity for interest rate hikes: Needed to curb inflation and maintain the soundness of financial capital.
Problem: Risk of economic recession and potential reduction in corporate investment.

3. Major Impacts of Interest Rate Hikes

3.1 Strengthening of the Yen

Japan’s interest rate hike → Reduced interest rate gap between the U.S. and Japan → Possible return of some capital to Japan.
Exchange rate: Some strengthening of the yen is possible, but the fundamental structure of a weak yen is expected to remain.

3.2 Liquidation of the Yen Carry Trade

Yen Carry Trade: A method of borrowing funds at Japan's low interest rates and investing in high-interest-rate countries like the U.S.
- Due to interest rate changes in 2024, there is a possibility of ‘yen carry liquidation’ with some capital returning to Japan.
- However, the U.S. interest rate is currently around 4.5%, still higher than Japan’s.
- A large-scale forced liquidation is not expected.

3.3 Global Asset Market Variables

Capital flows: Japan’s interest rate hikes may act as a pressure factor on the U.S./European stock markets.
A rapid increase in interest rates may also put pressure on Japan’s domestic real estate and stock markets.

4. Future Outlook: Global Financial Environment and Interest Rates

Global interest rate cut pivot (transition): Japan also aims for a neutral interest rate (0.7%) in the future, following the global trend.
Inflation is key:
- If inflation in the U.S./Europe stabilizes: Participating in the global trend of interest rate cuts.
- If additional inflationary pressures occur: Japan may further increase interest rates.
Exchange Rate Outlook:
- A gradual strengthening of the yen is expected rather than a sharp fluctuation in the dollar-yen exchange rate.

< Summary >

Japan increased its interest rate to 0.5% in November 2024, reaching its highest level in 30 years.
Main causes: Inflation rate at 3.6%, exceeding the target of 2%, and concerns about economic stability.
Interest rate hikes may strengthen the yen, possibly leading to a partial liquidation of the yen carry trade.
The interest rate difference between the U.S. and Japan remains around 4%, reducing the risk of a rapid capital movement.
Future interest rate trends may be further adjusted depending on the inflation levels in Japan and globally.

Crafted by Billy Yang
[Related Article at Next-Korea.com]
Japan Interest Rate Hike and Changes in the Yen Carry Trade
Ripple Effects of Weak Yen and Exchange Rate Outlook

*YouTube Source: [경제 읽어주는 남자(김광석TV)]

– [속보] 일본의 3번째 금리인상. 17년만의 높은 금리시대 진입. 엔캐리 청산과 블랙먼데이 재현될까? [즉시분석]

HS Goes: Day One Recap and Key Messages

1. The Beginning and Purpose of HS Goes

Motivation: The company, founded in 2022, successfully concluded 2024 after overcoming several challenges. With gratitude, they sought ways to give back to society.
Core Idea: The project began with the idea of donating their most valuable asset, "time."
Operation Method: Lectures are held at locations selected by lottery among applicants. The first lecture took place in Pangyo with 100 attendees from a financial tech group.

2. Pangyo Lecture Content and Key Messages

The Power of Tech:
- U.S. Big Tech companies have achieved significant economic success, expanding their influence (power).
- Example: At Trump's inauguration, tech leaders were seated in important positions, symbolically above government ministers.
- Big Tech's market cap has exploded from under $1 trillion in 2008 to approximately $18 trillion today.
Why the U.S. Focuses on AI:
- Competition with China: The increasing influence of Chinese AI. China leads the world in data volume.
  - China utilizes massive data with its 1.4 billion population and aggressively recruits talent in algorithm engineering (Thousand Talents Plan, Project 193).
  - "Project 193": Guarantees 9 times the annual salary for 3 years to attract global AI talent.
- U.S. Sense of Threat: Uncertainty about AI superiority has driven the U.S. to become more committed to AI.
Why Tech Power Leads to Collaboration, Not Sanctions:
Tech companies have not gained influence simply because they have a lot of money, but rather through the structure of the national urgency and global competition. Tech companies have become a core part of the government.

3. Q&A Session and Discussion on Bitcoin

Audience Interest: Most of the focus of the questions was on Bitcoin.
- Practical questions related to "why buy Bitcoin now."
- Discussions centered on volatility, purchase points, and safe investment methods.
Message about Bitcoin: Emphasized the future potential of Bitcoin and advised young audiences to invest with a long-term perspective.

4. HS Goes' Next Plans

Next Schedule: The second lecture is scheduled for April 23rd.
How to Participate: Apply to attend via comments. Lectures are provided free of charge.
Emphasis: Continuous lectures as a social contribution utilizing personal time.

< Summary >

HS Goes is a free lecture project in the form of donation. It provides helpful lectures to audiences selected through applications.
On the first day in Pangyo, they shared messages regarding the power of tech and Bitcoin, receiving great responses.
The discussion included the changing power structures centered around U.S. Big Tech amid the AI competition between the U.S. and China, and the importance of Bitcoin.
The next lecture is scheduled for April 23rd, continuing with the free application system.