Japan’s economy is too strong! Experts estimate that the chance of raising interest rates in December is over 50%. "If the U.S. falls, the sun will rise." Beware of the wave of yen arbitrage liquidation.

The Cabinet Office of Japan said today (9th) that Japan's real GDP growth in the third quarter (ending September) was 1.2% on an annualized basis, higher than the previous estimate of 0.9% and also better than economists' forecast of 1%. Will this data growth affect the upcoming (12/19) BOJ (Bank of Japan) interest rate decision?

Economists: Over 50% chance of rate hike in December

According to a Bloomberg report, Japan's economic growth has been revised upward, indirectly supporting the BOJ's view that the Japanese economy will expand moderately. In addition, the declines in net exports and capital expenditure have narrowed, and inventory growth has also been revised upward. Next week, during the super central bank week, the BOJ will announce the benchmark interest rate on December 19 (the US will announce its interest rate policy on 12/18, with a high probability of a 25 basis point cut). Bloomberg expects BOJ Governor Kazuo Ueda to carefully examine economic data, including the December 13 short-term survey, before making a decision. It is understood that Kazuo Ueda recently told the Nikkei Shimbun in an interview that the timing of the next rate hike is approaching. The GDP data released today, which exceeded expectations, has also deepened the market's speculation that the Bank of Japan will raise rates this month. Yuichi Kodama, an economist at Meiji Yasuda Research Institute, said: "Today's data once again confirms that the Japanese economy is steadily recovering." He believes that the possibility of the Bank of Japan raising rates in December is over 50%, but due to the recent slight appreciation of the yen, the central bank may also postpone the rate hike decision to January next year. In addition, Bloomberg economist Taro Kimura also said:

After comprehensive consideration, we believe that the Bank of Japan will view this GDP report as evidence that the economy is strong enough to withstand further reductions in stimulus measures.

Will the yen carry trade see another wave of unwinding?

You may remember that the BOJ's decision to raise rates by 15 basis points at the end of July this year, coupled with the US Federal Reserve's preparation to cut rates at the time, led to a sharp rise in the yen, compressing the profit margin of the "borrow low-interest yen, buy high-interest currency" carry trade, and causing a large number of investors to unwind their positions, impacting the global stock and currency markets in early August. Although investors have had some time to guard against potentially disastrous consequences since August, if the Bank of Japan does decide to raise rates in December, it will be the second action after the rate hike in July this year, and the risk of unwinding the yen carry trade may resurface, potentially impacting the global capital markets. On August 5, Bitcoin briefly plunged to $48,900, the S&P 500 index plummeted 3% marking the largest single-day decline since September 2022, and the Nikkei 225 index even crashed more than 12%, with the global markets facing selling pressure.