Citing HashNews, China Merchants Bank (CMB) has warned that the reversal of yen carry trade could exert long-term pressure on global liquidity. In its report, CMB noted that the Bank of Japan raised its policy interest rate by 25 basis points to 0.75% on December 19. Despite the cautious rate hike, the reversal of liquidity in the yen market and Japan's debt situation may continue to weigh on the global financial environment. The report highlights that approximately $9 trillion in low-interest yen remains a liquidity source, which could shrink as U.S.-Japan interest rate differentials tighten. Additionally, Japan's fiscal expansion plans, including increased defense spending and permanent consumption tax cuts, may further amplify debt risks and lead to a steeper yield curve.
CMB warns yen carry trade reversal could pressure global liquidity
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Summary
Citing HashNews, China Merchants Bank (CMB) has warned that a reversal strategy in the yen carry trade could pressure global liquidity. The Bank of Japan raised its policy rate by 25 basis points to 0.75% on December 19, but the unwinding of yen-based on-chain trading signals and Japan’s debt risks may still weigh on markets. Around $9 trillion in low-cost yen liquidity could shrink as U.S.-Japan rate differentials narrow. Japan’s fiscal plans, including higher defense spending and tax cuts, may worsen debt concerns and steepen the yield curve.
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