Japan would raise its interest rate to its highest level in 17 years

The Bank of Japan will meet starting this Thursday, January 23, to define an interest rate increase.

According to the Reuters news agency, Japanese authorities are sending clear signals to the market about a possible rate hike to prevent another “Black Monday.”

As NoticiasVE reported, during the first days of August 2024, The BoJ raised interest rates by 0.25% and set off alarms in the markets. On that occasion, the Nikkei, the main index of the Tokyo Stock Exchange, plummeted 5.81%.

The BoJ’s decision coincided with an adverse global context due to geopolitical conflicts in various regions, weak employment data in the United States and rumors of a recession in its economy, creating a true perfect storm.

Currently, the interest rate is 0.25% and projections indicate that the BoJ will implement a measure that would raise the cost of borrowing in the short term, at levels not seen since the 2008 financial crisis.

It is important to explain that when interest rates rise, investors often seek refuge in less risky assets, such as Treasury bonds, to protect their capital and ensure a more stable return.

Otherwise, when the rate falls, the cost of borrowing decreases and Investors often take out loans to invest in risky assets. such as stocks, bitcoin (BTC), and cryptocurrencies for higher profits.

Unlike what happened in 2024, this time the United States economy shows no signs of recession, which could reduce the impact of the BoJ’s decision globally.

On the other hand, it should be noted that the impact of carry trade japanese has decreasedbecause several investors dismantled their positions in August 2024 due to fears of a new increase in the interest rate.

He carry trade Japanese is a strategy where investors borrow in yen at very low rates and They convert them to other currencies, such as the dollar, to invest in assets with higher returns.

This works thanks to the large gap between interest rates in Japan and other countries, such as the United States. It also drives the buying of stocks in Japan, causing many to reach high levels. However, the increase in rates in the Asian country strengthened the yen and complicated the carry trade.

At the time, many investors faced pressure to repay their yen loans, forcing them to sell assets quickly, causing declines in financial markets.

Although an impact as significant as that of “Black Monday” is not expected, It will be key to closely observe its influence on financial markets.