China Merchants Bank warns: Yen arbitrage reversal may exert long-term pressure on global liquidity

According to reports from Hashi Chain, China Merchants Bank pointed out in its latest report that on December 19, the Bank of Japan raised its policy interest rate by 25 basis points to 0.75%. Despite maintaining a cautious pace of rate hikes, the reversal of yen liquidity and the Japanese bond market continue to pressure global financial conditions. First, the potential ongoing reversal of yen arbitrage trades could exert long-term suppression on global asset liquidity. By the end of 2024, approximately $9 trillion in low-interest yen remains as a source of liquidity, which may gradually shrink as the US-Japan interest rate differential narrows. Second, Japan’s debt risk may further ferment. In the short term, Takamatsu local government has approved a fiscal budget supplement equivalent to 2.8% of nominal GDP; in the long term, Japan plans to increase defense spending to 3% of nominal GDP and implement permanent consumption tax cuts. Japan’s ill-timed fiscal expansion stance could trigger greater market concerns, with medium- to long-term Japanese bond yields likely to rise steeply, accelerating curve steepening.

#招商银行 #Yen #流动性 #Fiscal Policy #Global Markets