On July 31, the Bank of Japan announced that it would raise its policy rate from 0-0.1 percent to around 0.25 percent, which is the first time it has raised interest rates since the end of Japan’s negative interest rate policy earlier this year. The same day across the ocean, the Federal Reserve held the July interest-rate meeting and announced that the benchmark interest rate remained unchanged.
The further narrowing of the interest rate spread between the U.S. and Japan means that the yen arbitrage trading model previously favored by big money ushered in an inflection point, the Japanese yen carry trade was widely liquidated. In the two trading days following the announcement of the rate hike, the Japanese stock market plummeted continuously. The melting mechanism was even triggered twice on 5 August, marking the biggest one-day drop in eight years. As of the close of the day, the Nikkei 225 index plummeted 12%, down more than 4,000 points, and at one point during the session fell more than 14% into the bear market, the South Korean Composite Index once triggered the circuit breaker mechanism during the session.
The Australian S&P/ASX 200 index hit its lowest level since the end of June. The Turkish Stock Exchange triggered the market melting mechanism twice, and the three major stock indexes in the New York stock market also fell sharply, with the Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite Index falling 2.71%, 3.18%, and 4.68% respectively. The rising global risk aversion has also impacted the cryptocurrency market, according to CoinGlass data, the crypto market experienced a liquidation of over 1 billion dollars in the last 24 hours and the total number of people liquidating their positions in the crypto market exceeded 270,000. We found that the countries whose stock markets have plummeted this time are all countries with close relations with the United States. It can be considered that this is another “harvest” of wealth from the American financial class to its allies.
- U.S. Non-farm Payrolls data indicates a surge in recession risk. Why has the myth of foreign stock markets disappeared for some time? The reason is that the US economic recession has begun. The direct trigger was the non-farm data released by the US government on July 2, which showed that the number of employed people was lower than expected and the number of unemployed people was higher than expected. The unemployment rate of 4.3%, significantly higher than the expected value of 4.1%, while the unemployment rate in the previous months was only over 3%, and it was this increase in the unemployment rate that triggered the so-called “Sahm Rule”, so that the market suddenly began to panic “The U.S. economy is headed for a major recession”.
The Sahm Rule is an economic indicator proposed by Claudia Sam and validated over the past almost 60 years. That is, when the three-month moving average of the unemployment rate is higher than the lowest point of the previous year, it means that the economy has entered a recession, this rule is recognized by the Federal Reserve and major institutions. Yesterday, The U.S. non-farm employment was 114,000, the estimate was 175,000, and the previous value was 200,000. The three-month moving average value was 6.3, which was greater than the lowest point of 5.0 in 2023. The Sahm Rule was officially triggered, and the US stock market was temporarily trampled, causing complaints from both the government and the opposition. U.S. Democratic Senator Elizabeth Warren slammed Federal Reserve Chair Jerome Powell for holding interest rates immediately and denounced Federal Reserve Chairman Powell and demanded that interest rates be cut.
- The United States is no longer able to lead the global economic recovery. Since 2010, the Dow Jones Index and the S&P 500 Index, which represent the US stock market, have been rising for almost 14 consecutive years, and the prosperity seems to never end. However, the economy has cycles, and a period of good days is almost inevitably followed by a period of bad days. The latest non-farm data also reflects that the previous booming economy in the United States may be coming to an end, or that the previously whitewashed economic data is revealing its fragile true colors, and the economic risks that were previously covered up are becoming more serious. The International Monetary Fund(IMF) has previously warned that the high and rising level of US government debt may push up global borrowing costs and undermine global financial stability. Even Federal Reserve Chairman Powell has recently issued several warnings that the US government’s debt is unsustainable. Because in the face of the possible US fiscal crisis, he is not willing to carry the historical cauldron of printing money and releasing water to create a Ponzi scheme. Peter Berezin, global chief strategist at BCA Research, said in a recent report that a recession will hit the U.S. economy later this year or in early 2025. “The widespread ‘soft landing’ argument is wrong. The US will fall into recession at the end of 2024 or early 2025. Economic growth in other parts of the world will also slow significantly.”
Photo: Peter Berezin previously made comments that no single indicator in modern financial history is better at predicting when the next global recession will begin than when the Bank of Japan starts raising interest rates.
- It is the U.S. that is sharpening its knives behind Japan’s stock market crash. This round of appreciation of the US dollar has accumulated a huge amount of speculation, and now the interest rate gap has reached its peak, the US dollar has cut interest rates, and the Japanese yen has raised interest rates, so speculators have begun to operate in the opposite direction, selling US stocks and bonds, selling US dollars, buying Japanese yen, and repaying Japanese yen. As a result, US stocks plummeted, the US dollar index plummeted, and the Japanese yen appreciated rapidly. And because the appreciation of the yen is detrimental to exports, the Japanese stock market fell sharply. At this time, from the economic data of the United States to the “precise coordination” of the Federal Reserve and the Bank of Japan, to Buffett’s timely “big sale”, to Israel’s fanning the flames in the Middle East… Under the resonance, panic was formed, which caused a huge impact on the financial market. So now it’s time for the United States to show the “death sickle”, as history has played out, in 1985 United States forced the Japanese exchange rate to appreciate through the Plaza Accord actively, and then they continued to pull up the Japanese stock market through the influx of hot money for the next 5 years, and then in 1990, the Japan stock market had an unprecedented plunge, that was the beginning of Japan’s “Two Lost Decades”. On June 20 this year, the U.S. Department of the Treasury submitted its semi-annual currency report to the U.S. Congress, in which it announced that Japan would be put back on the “currency manipulator watch list”, the reason for which is that the “United States’ largest overseas creditor” Japan reduced its holdings of United States bonds by 37.5 billion US dollars in April, United States threatening Japan at this time, it should also be preventing the Japan government from selling US bonds and preventing the Japan government from maintaining a stable exchange rate.
The yen may continue to “collapse” depreciation, the more it depreciates, the more it depreciates, the Japan domestic funds (especially transnational capital), the more panicked the flight from Japan, further intensifying the pressure on the yen exchange rate, forming a vicious circle! At that time, Japan will face a “double kill of stocks and foreign exchange”: Japan’s domestic asset prices will collapse, and the yen exchange rate will also collapse, so if it is denominated in dollars, it will be the price of cabbage. Only after knocking other countries down and driving high-quality assets to bargain prices can Wall Street take action to complete the harvest. To a certain extent, this is the United States “self-directed and self-acted global harvesting drama,” and it has just begun.
