Guide
Asia-Pacific stock markets continued to fall, with Japan stocks falling sharply in turmoil as the central bank raised interest rates. It reveals Japan's long-term reliance on monetary policy to maintain a "false boom", the market shock caused by interest rate hikes and the impact on the global economy. What is the meaning behind the Bank of Japan's interest rate hike? Let's uncover the "breakthrough" in this global economy!
Asia-Pacific equity markets continued to fall
Asia-Pacific stocks continued to fall on Monday on the back of United States nonfarm payrolls data, with the Nikkei 225 falling more than 6% in early trading.
And on July 31, the Bank of Japan decided to raise the policy rate from 0% to 0.25%, the first rate hike since ending the negative interest rate policy in March.
On August 5, Japan's Topix index fell by 8% at one point, and even triggered the circuit breaker mechanism.
According to statistics, since the Nikkei 225 hit its highest point of the year on July 31, it has fallen by 20% and officially entered a technical bear market.
It can be said that the Bank of Japan's interest rate hike operation directly led to a violent shock in the Japan stock market.
The "runaway" of monetary policy
Why is the Japan stock market so sensitive to the central bank's interest rate hikes?
In fact, this involves the phenomenon of "false prosperity" in Japan, which has long relied on monetary policy to maintain its economy.
Although Japan has been accommodative in monetary policy since the 2008 financial crisis, its real economic growth has been weak.
As global central banks gradually withdraw from easing, Japan is also aware of the risks of continuing to maintain a low interest rate policy.
The Bank of Japan's interest rate hike this time can be said to be an attempt to combat the phenomenon of "false prosperity" by tightening monetary policy.
However, as a large debtor country, Japan is also facing huge pressure on its national debt.
The rate hike could cause Japan's government bond yields to climb, increasing fiscal pressure on the authorities to service their debts and hitting exports.
It can be said that this interest rate hike is the "out of control" of the Bank of Japan in monetary policy, which directly leads to large fluctuations in the stock market.
The "decline" of Japan's stock market
In recent years, with the shift in the monetary policy of global central banks and changes in the global economic pattern, the phenomenon of false prosperity in Japan has become more and more prominent.
Although Japan's inflation rate accelerated for the second consecutive month in June, both CPI and core CPI have risen year-on-year for 35 consecutive months.
However, according to the latest data released by the World Bank, the global inflation rate in 2022 is 5.9%, while Japan's inflation rate is 1.4% in the same period, which is significantly lower than the global average.
It can be said that Japan's interest rate hike this time is not based on the consideration of its own inflationary pressure, but is forced to "follow the trend".
That said, in the current economic environment, it is difficult to see the obvious benefits of low interest rates for the Japan economy.
On the contrary, low interest rates have led to high asset prices and declining corporate profitability.
The market turmoil caused by Japan's interest rate hike is also a reminder of the phenomenon of false prosperity.
Behind the interest rate hike
So, at such a point in time, the Bank of Japan still chooses to raise interest rates, what kind of medicine is sold in the gourd?
To be clear, Japan's interest rate hike is not due to concerns about inflationary pressures.
Conversely, in the current environment, higher interest rates will act as a damper on inflation.
As a large debtor country, Japan actually needs more to reduce the burden of its national debt through low interest rates.
So the question is: since it is not to combat inflation or stimulate the economy, what is the meaning of Japan's interest rate hike?
From a macro perspective, at a time when central banks around the world are "following suit" to raise interest rates, it has become more difficult for Japan to keep interest rates low for a long time.
This interest rate hike operation is not a simple interest rate hike operation, but an attempt to balance the interests of all parties through a small interest rate hike.
However, at present, due to factors such as market expectations and the macro environment, a small interest rate hike cannot have the desired effect.
As a result, a series of negative effects such as falling asset prices and stock market crashes have been caused.
"Breaking the game" under global pressure
As the world's third largest economy, when Japan chooses to raise interest rates, it will inevitably have an impact on the global economy.
Under the current global multiple pressures, especially the sluggish non-farm data in United States and the slowdown in economic growth in large eastern countries.
United States nonfarm payrolls rose by 114,000 in July, well below expectations, according to the United States Bureau of Labor Statistics.
The foreign trade data of the eastern countries in July also showed negative growth.
It can be said that raising interest rates against the backdrop of the current slowdown in the global economic recovery, weak recovery, and even the possibility of a double dip will undoubtedly further exacerbate recession fears.
"Counter-cyclical" debt
Although Japan's economic recovery has been sluggish or even sluggish in recent years. But under various pressures, the Japan authorities continue to increase debt.
Data show that in the first half of this year, the new debt of the Japan authorities has reached 103 trillion yen. This year's budget gap is expected to be around 60 trillion yen.
According to the president of the Japan Keidanren Federation, the Japanese authorities are actually borrowing money to pay off debts. This creates a huge fiscal deficit.
Foreign capital sold en masse
In the face of such a complex and severe situation, investors will undoubtedly pay more attention to the direction of asset flows. Foreign investors collectively choose to sell their assets.
In the last week alone, foreign investors sold 1.1 trillion yen in stocks. It set a record for the largest collective sell-off of foreign capital in history.
It can be said that the operation of raising interest rates under such great pressure is carried out, and the rate hike is not large. In fact, it doesn't have much effect on the current economic environment. Instead, it brings more uncertainty.
The pain of "negative interest rates".
With the Fed expected to raise interest rates 3-4 times this year. US dollar assets will become more attractive. At that time, there may be an outflow of funds. This, in turn, caused turmoil in financial markets.
epilogue
The turmoil in Japan's stock market reflects the complexity and interconnectedness of the global economy. Faced with interest rate hike pressures and debt problems, Japan's choice is both a "counter-cyclical" challenge and a response to the global economic situation. What impact do you think Japan's interest rate hike will have on the global economy? Leave a comment to share your thoughts!