Recent developments in financial markets [materiał partnera]

This weekend will be an unforgettable one for many investors, especially those who have suffered huge losses in the markets, especially in the foreign exchange market. Well, I think that everything bad that happened here falls squarely on the shoulders of the Bank of Japan. Although during this speech I will try to defend my colleagues from Japan in every possible way, the decisions of the Bank of Japan have indeed caused some fear. And to understand the essence of this fear, it is necessary to say a few words about interest rates and the huge disparity that exists between interest rates in Japan and other countries.

Dr. “The market reaction was that this increase was not large enough and that the Bank of Japan should tighten its policy more decisively.” – Dr.

I dare say that in my personal opinion the market is not consistent, because when on Wednesday the Bank of Japan announced an interest rate hike, which is still microscopic compared to other countries, the interest rate increased by 15 basis points, the initial reaction of the market was that this increase is not big enough and that the Bank of Japan should tighten its policy more decisively. Within a few hours, when the consequences of this decision were understood, suddenly there were voices of opposition, even criticism of the Bank of Japan. And here we can have some sympathy for the Japanese, because no matter what they do, their central bank will always be criticized. If they do not raise interest rates, there will be accusations that the Japanese yen is too weak. If they decided to raise the interest rate, in line with what the market expected of them, suddenly it would find that the capital market, especially the stock market, was a big problem. So, to put it quite colloquially, no matter what the Bank of Japan does, it will always be bad and it will backfire.

Dr. Trend Reversal in the Dollar-Yen Ratio – Analysis.

The relationship between the dollar and the Japanese yen is, I would say, a reflection of what is happening between the United States and Japan. The yen has continued to weaken today, right up until today, July 11th of this year. So when it turned out that suddenly inflation in the United States started to fall, and the fall in inflation meant that interest rates in the United States could be cut, and the cut in interest rates in the United States meant that the SPRED, or the spread between Japanese and American interest rates, would become lower. This was the first signal for investors to buy the Japanese currency. Then there was a small but imperceptible reversal of the trend. In the meantime, the Bank of Japan also intervened in a big way, buying the Japanese yen. However, the final nail in the coffin of the boom that was taking place was the data from the American labor market. It turned out that the labor market is probably already feeling the effects of the slowdown.

The full conversation is available on the channel What’s Happening in Financial Markets? (youtube.com)