On July 31st, the Bank of Japan announced an increase in interest rates from 0%-0.1% to 0.25%. This is the first rate hike since they abandoned the negative interest rate policy in March this year, and it is also the first time in 17 years since February 2007.

Looking back at history, every time the yen has increased interest rates, the world economy has followed suit, such as the collapse of the U.S. internet bubble in 2000, and the subprime crisis in 2006 and 2007. Therefore, the market is particularly sensitive to Japan's interest rate hikes.

It is important to know that since 1990, Japan has been implementing a low-interest-rate policy for 23 years, with the deposit rate even falling to a negative 0.1%, which is synonymous with QE (quantitative easing).

So why raise interest rates at this particular time? To put it bluntly, it is the result of the Sino-American game.

As everyone knows, the United States has been raising interest rates since March 2022, aiming to push the prices of our core assets to the lowest, and then take the opportunity to bottom-fish when our capital market opens up. However, we did not let them succeed and held on firmly.

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So the United States is anxious, seeing that its own manufacturing industry is not developing, and still has to bear a debt of 35 trillion U.S. dollars. To break the deadlock, the United States has to force Japan to raise interest rates - whether directly or indirectly, as long as it can help the U.S. dollar to deal with China together.

After all, from the end of last year to now, the capital that needs to flow back to the United States has already flowed out, and now is the time when the interest rate difference between China and the United States is the highest, and a new balance of capital flow has been achieved overall. At this time, if Japan intervenes again, it will break the interest rate balance between China and Japan again.

Japan is now being forced by the United States with a gun to its head, and it has to raise interest rates. After all, the United States itself is almost unable to bear it and can only trigger Japan to start this century's financial crisis.Behind the Yen Interest Rate Hike

The American Chess Game and Japan's Choice

The relationship between the yen and the US dollar has always been like that of a shadow and a body; the credit of the yen is supported by the US dollar. Every time the Federal Reserve and Wall Street engage in financial warfare by adjusting interest rates, the yen is their biggest helper.

However, in front of the US dollar, the yen is more like Han Li's "second yuan baby," doing all the dirty and tiring work behind the scenes, occasionally getting a little benefit. If "Han Li" is injured, he can use the second yuan baby to heal, and the relationship between Japan and the United States is similar.

In the 1990s, the United States launched a financial war against Japan, and Japan was defeated. Since then, Japan's core industries have basically been controlled by US capital, which is actually in the hands of Wall Street. Japan claims to have overseas assets of 10 trillion US dollars, earning a net profit of 4 trillion, but it is just a puppet of Wall Street, with a loud reputation but actually not in control of its own fate.

As we all know, in order to revitalize the economy, Japan has always implemented a low-interest-rate policy, and the central bank has been printing money crazily for 23 years, pouring out 65 trillion yen, equivalent to 3.1 trillion yuan.

In theory, Japan's money-spraying over the past 20 years should have caused inflation to soar, but the average annual CPI only increased by 2%, which is very moderate.

So where did these over-issued yen go? They are not circulating in Japanese social life, nor in the international market, but are all locked in the pool of the Japanese bond market.Japan has attracted a large amount of overseas capital for investment by leveraging the long-term prosperity within its bond market. Investors borrow money in Japan, convert it into hard currencies like the US dollar, and through this round-trip transaction, they not only earn the interest rate differential between the US dollar and the yen but also cause the US dollar to appreciate and the yen to depreciate due to the surge in demand for the US dollar. The profit space of the carry trade swells like a balloon.

In this way, the Federal Reserve and the yen have jointly driven up the prices of overseas assets, creating a monetary tidal wave for the Federal Reserve to harvest the world in the next round of interest rate hikes. It is a secret and perfect operation, stealthily plundering the world's wealth.

Over the past 40 years, Japan has worked hard for the United States, and apart from daily expenses, the remaining money must be obediently used to buy US debt, exchange for US dollars to invest in emerging overseas economies. It is said that the assets Japan holds overseas can rebuild a Japan, but it has nothing to do with Japan's domestic industry, real estate, and consumer markets.

This is why the United States chooses the yen, because Japan's zero-interest-rate policy makes the cost of obtaining yen almost zero. The United States easily grasps Japan's core lifeline - Wall Street can use a little US dollar as collateral to get ten or eight times the cheap yen from Japanese banks, just like picking up something for free. You see, Warren Buffett has been shopping in Japan from last year to this year, busy and happy.

At the current stage, the US dollar's interest rate hike has reached the final stage, and the liquidity compression formed by the US dollar in the market is also coming to an end. So, who will continue to add fuel to the fire and cause a fatal blow? The answer is the yen, which is another shell for the Federal Reserve.

So, after the Bank of Japan announced an interest rate hike, the stock market rose, but the yen fell, which is exactly the opposite of the normal logic of interest rate hikes. Because Japan's interest rate hike is just to let the money in East Asia flow back to Japan first, and then all go to the United States at once.

But Japan itself does not want the exchange rate to rise too fast. It is important to know that the scale of Japan's bond market is not small - 1300 trillion yen, which is close to 2.5 times Japan's GDP. More than half of it is held by the Bank of Japan itself, and the rest is held by Japanese financial institutions and the public.

The scale of this bond market can be said to be a sword hanging over Japan's financial head, and it can be called the biggest bubble in Japan now. If the Bank of Japan shakes its hand and raises interest rates too much, it is not impossible for the bond market to collapse, which would be a suicide attack.

Japan itself certainly does not want to jump into the fire, so they have always been very careful about raising interest rates. This is also why the central banks of the Five Eyes Alliance and the European Central Bank have followed the United States in raising interest rates, but the Bank of Japan has always remained still.But at this moment, the United States is pressuring Japan to take action and make a final stand, while also intending to completely sever Japan from us in terms of capital, determined to make Japan the cannon fodder. As for whether Japan can withstand it, that depends on whether its fate is tough enough.

The Enlightenment of Japan's Interest Rate Hike to Us

Creating a New Role for the Renminbi on the International Stage

Many people are concerned about how much impact Japan's interest rate hike will have on us, but it actually depends on the speed and intensity of their rate hike.

If Japan's interest rate hike is fast and fierce, it may have some impact on us; if it is slow and steady, the impact will be much smaller, or even negligible.

At present, it is likely to be the latter, with a few months of hesitation, resulting in a lot of thunder but little rain.

There is an impact on Sino-Japanese economic cooperation, but the impact is limited. The direct impact is that the prices of yen and US dollar assets have risen, and some of our funds will flow to Japan, causing further compression of the Chinese market.

The indirect impact is in Southeast Asia - after all, Japan is a major overseas investor, and they have invested the most money in Southeast Asia. Once the yen raises interest rates, these funds may be withdrawn from Southeast Asia, followed by the devaluation of the Vietnamese dong and Thai baht, and the Vietnamese stock and housing markets are affected, which may lead to a financial crisis in Southeast Asia.Our trade with ASEAN has been closely cooperating since after 2021. Whenever they face a crisis, their purchasing power drops, and our exported goods and related industries may not make money, which indirectly affects our domestic import and export trade.

However, overall, our financial policy is independent and not controlled by the US dollar or the Japanese yen, nor do we imitate the financial models of the United States or Japan. Moreover, the scale of our yen debt is not large, the capital flow of A-shares is not too restricted, and the proportion of yen used in import and export is not high, so the impact of the yen interest rate hike on us is limited.

However, this yen interest rate hike has also served as a reminder that while we have been striving to promote the pricing of RMB in recent years, we have forgotten that the RMB can also be a good helper for debt.

Look at those countries that are burdened with large amounts of yen or US dollar debt, they all need to find some yen or US dollar assets to hedge. Because if the assets of a country and the money it owes are not in the same currency, once the strong currency raises interest rates or appreciates, the weak currency will tremble, devalue like sliding down a slide, the value of domestic assets shrinks, and the debt pressure becomes larger and larger like a snowball.

In the past few years, we have been working hard to improve the liquidity and tradability of RMB-priced assets, and it seems that we have been neglecting the role of RMB as a debt pricing currency. In fact, to make the RMB go global, we must first make it a good partner for debt.

This can not only reduce the transaction costs of our own enterprises but also make the international balance of payments more stable, without worrying about the impact of foreign currency fluctuations on the national economy. This is equivalent to putting a bulletproof vest on the Chinese economy and giving ourselves more ways out.

Of course, the premise is to maintain the stability of the RMB exchange rate. The exchange rate is now a matter of life and death, and both significant appreciation and depreciation will affect China's economy.

First, we need to loosen the capital account, lower the threshold, simplify the process, and let the RMB roam more freely internationally. But remember, openness is not laissez-faire, we must grasp openness with one hand and risk control with the other, to ensure the financial market is as stable as Mount Tai, and not let financial risks take advantage, finding that subtle balance point.Next, it is essential to strengthen the credit system. By leveraging international credit rating agencies, we can enhance the credit rating of the renminbi, safeguard the rights and interests of foreign investors, and provide them with a clear legal map and dispute resolution solutions, thereby ensuring the credibility and reputation of the renminbi.

Financial innovation should not be neglected either. We need to develop a variety of financial products, such as bonds, stocks, and funds, to cater to the diverse appetites of investors. At the same time, we must keep pace with technological advancements, including blockchain, big data, and digital currencies, ensuring that none of these are left behind. It is also crucial to develop a multi-level capital market, including stock and bond markets, to provide a platform for both large and small enterprises, making financing more accessible.

We should not forget about overseas markets either. Establishing offshore renminbi markets can attract global attention and encourage the use of the renminbi worldwide.

In summary, we must align with the economic pulse of the nation, with macro-prudential and micro-regulatory policies working hand in hand, prioritizing safety while meeting demands. We should continuously advance in terms of quantity and quality, both domestically and internationally, without crossing the line of systemic risk.

Only in this way can emerging market countries be motivated to include the renminbi in their reserve assets, allowing the ship of renminbi internationalization to sail steadily and swiftly.

Over the past two years, the real estate and stock markets have been hit by a biting cold wind, an inevitable cost in the face-to-face confrontation between China and the United States. Of course, the situation in the United States is not much better, as they also face immense pressure. In the global chess game, no one is spared.

Now, a financial war aimed at dragging China down has entered its final stage of intense struggle. However, the more critical the situation becomes, the more the United States will unleash its trump cards like a barrage of cannonballs.

Japan's recent interest rate hike may not be significant in magnitude, but the real killer move is choosing to act at the tail end of the U.S. interest rate hike. If this move can cause the Hong Kong stock market to take a big tumble, or drag the Chinese real estate market into the water, triggering a domino effect in China's economy, it would undoubtedly be a proud stroke in the United States' financial strategy.History tells us that in the game of great powers, it is not about the gains and losses of a single city or pond, every step must be taken with care and caution, "Strategically despise all difficulties, tactically value every detail," this is our unchanging creed.

Of course, the weight of the yen is far behind that of the US dollar. After all, the US dollar has been added to 5.5%, and our financial defense line is still as stable as Mount Tai, if even the father can't handle it, how much can the yen make waves.

What we are now seeking is time, to be steady and patient, and to wait for the opportunity to turn. To remain still to control the situation, to remain unchanged in the face of all changes. Just like that saying: "When the storm comes, some people hide in the shelter, while others learn to ride the waves!"