Golden Finance reported that Arthur Hayes, the co-founder of BitMEX, posted on social media to express his views on the correlation between the adjustment of the Bank of Japan’s monetary policy and the trend of global risky assets. He clearly pointed out, “If the Bank of Japan decides at its meeting this month to postpone the balance sheet reduction (QT) process and restart some quantitative easing (QE) measures, then risky assets are likely to experience a significant upward trend.”
The long-term monetary policy direction of the Bank of Japan has always been closely watched by the global financial market. In recent years, under the intertwined influence of multiple factors, the Japanese economy has been confronted with challenges such as inflationary pressure and insufficient impetus for economic growth. Previously, the Bank of Japan implemented a quantitative easing policy, injecting a large amount of liquidity into the market by purchasing bonds and other assets on a large scale, with the intention of stimulating economic growth and raising the inflation level. However, the effect was not satisfactory. Subsequently, with some changes in the economic situation, the Bank of Japan began to attempt to shift to a balance sheet reduction strategy, aiming to gradually reduce the size of the balance sheet, withdraw the liquidity previously released, and bring the monetary policy back to the normal track.
However, the pace of Japan’s economic recovery remains slow at present, and the bond market has also experienced fluctuations. For instance, the yields of Japan’s long-term bonds have continued to rise recently. The 40-year yield has reached its highest level since issuance began in 2007, and the auction of 20-year government bonds has suffered its worst outcome since 2012. Against this backdrop, the market’s expectations for the direction of the Bank of Japan’s monetary policy have become extremely sensitive.
If the Bank of Japan, as Arthur Hayes speculated at the June meeting, delays balance sheet reduction and restarts some quantitative easing, theoretically and based on past experience, it will have a significant impact on risky assets. Once quantitative easing is resumed, market liquidity will increase significantly again. A large amount of capital flowing into the market will first lower market interest rates, reducing the financing costs for enterprises. This will stimulate enterprises to expand investment and increase production, promote the development of the real economy, and further drive up the prices of risky assets such as stocks.
At the same time, abundant liquidity will enhance investors’ risk appetite, prompting funds to flow from traditional low-risk and low-yield assets such as bonds to risky asset areas like stocks and cryptocurrencies, thereby driving up the prices of risky assets. Take the cryptocurrency market as an example. During the period when major central banks around the world implemented quantitative easing policies, the prices of cryptocurrencies such as Bitcoin rose sharply, and the total market capitalization repeatedly reached new highs.
At present, the global economy is in a complex and volatile environment, and the monetary policies of various countries interweave and influence each other. This potential policy shift by the Bank of Japan will not only have a profound impact on its own financial market and economy, but also may spread to the risky asset markets of other countries through global capital flows, exchange rate fluctuations and other channels, triggering a new round of pattern adjustments in the global financial market.
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