How significant is the impact of the Japanese yen interest rate hike this time, and will the August 5th shock of 2024 reappear? The statement made by the Governor of the Bank of Japan yesterday has raised concerns in the market, with adjustments in various markets. As a beneficiary asset of carry trades and the most sensitive asset to liquidity, it has the largest downward impact on the market. People are all worried about the impact of Japan's interest rate hike on carry trades. In fact, there have been many discussions of this kind since August 5th last year, and various grand narratives have also become popular. Let's talk about this again: 1. The difference this time compared to July and August last year is: 1) The consistent expectation of bearish views on the Japanese yen in the first half of 2024 is strong. When the yen exchange rate is above 150, the market accumulates a large number of short positions. After the yen trend reverses, there is significant pressure to passively close positions. This year, the US dollar has been widely bearish, and the expectation of sustained depreciation of the Japanese yen in the medium term has reversed. Short selling of the Japanese yen has significantly decreased, and the current short positions in the yen are almost half of those in early July last year, according to CME data. 2) Last year, the Japanese yen raised interest rates more than expected, and then the announcement on August 2, 2024, that the non farm sector in the United States did not meet expectations in July, triggered strong recession concerns. The upward trend on the cost side exceeded expectations, while the revenue side is concerned about compression and rapid withdrawal of funds. The market's expectation for the yen to raise interest rates this time is actually quite long, and the magnitude of the rate hike is basically locked in at a selfish 25 basis points. At the same time, there is currently no concern about a US recession. The US November manufacturing PMI released last night (S&P data slightly worse than expected, ISM slightly lower than expected) can be seen as maintaining stability. The market has expectations and naturally takes early actions, and some funds will also withdraw in an orderly manner. 3) Looking at future expectations At the end of July 2024, the Bank of Japan unexpectedly announced a rate hike and planned to reduce its balance sheet, which was a rare hawkish move in many years. For the market, the biggest fear was this kind of unexpected move. Then, at that time, the market began to anticipate that the Japanese central bank would continue to raise interest rates and tighten, and that capital actions would accelerate. The main reason for the significant surge in the yield of Japanese yen long-term bonds this time is that under the new large-scale fiscal expansion policy, the market continues to be concerned about the risk of Japanese debt, causing the yen to continue to decline. It is necessary for the central bank to maintain exchange rate stability, and more importantly, what is the upper limit of Japan's future interest rate hikes? In fact, on September 24, the most hawkish member of the central bank, Naoki Tamura, made a statement https://((x.com))/qinbank/status/1834209134167617591? S=46&t=k6rimWSEbo2D2TXolYcM-A hopes to raise interest rates to 1%, which can actually be seen as the upper limit of Japan's next round of interest rate hikes, especially in the context of large-scale fiscal stimulus and unstable economic recovery. It is difficult to expect the Bank of Japan to raise interest rates even more in the future. 4) Last year, the data carry trade began to decline, and after 24 years of 8.5's major impact, I personally thought that the carry trade had actually been dismantled a lot, and its size was not that large anymore. But it means that the Japanese yen has been out of low interest rates for a year and a half, and this time it is not just the beginning but the continuation. As mentioned in the third point above, the Bank of Japan hopes that interest rates will return to normalization, rather than reaching high rates. But rather, the long-term low interest rate of scallions returns to a long-term low interest rate state (around 1%) 2. In September last year, there was a detailed review of https://((x.com))/qinba frank/status/1833765180368396758? S=46&t=k6rimWs Ebo2D2tXolYcM-A The direction of the Bank of Japan's interest rate hike, the composition of yen carry trades, speculative funds, and investment funds. 3. The current market expects the central bank to raise interest rates in both December and January. According to Goldman Sachs' latest analysis, the probability is higher in January, while Morgan Stanley believes that the probability is higher in December. It also depends on the game between the Bank of Japan and the government. 4. Overall, the impact of the reversal in the current round of yen carry trades will have a significant impact on the market, but the magnitude is expected to be much smaller than in July and August of last year. The key is to look at the https://((x.com))/qinbafrank/status/1991790579202597166 discussed here in late November? s=46&t=k6rimWsEbo2D2tXolYcM-A， Pay attention to the impact of the ebb of carry trades, with a focus on the trend of the US Japan exchange rate. 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