The Bank of Japan versus the Federal Reserve and how their battle crashed the market, and of course what this means for you now in today's over financialized world, the battle between major central banks can change the asset prices in the blink of an eye, and today the stakes have never been higher. Japan and the Federal Reserve are locked in a battle that sent shockwaves through the entire global markets, and the.
Aftermath could change everything.
Now what happened, Well, just a few days ago, Japan took an unexpected and very bold step that nobody thought that they could or that they would do this, and basically they raise interest rates against all odds. Now, this was a direct challenge to the Federal Reserves dominance and has thrown markets into complete chaos. But why did they do it and how does this impact you?
Now?
In this video, we're going to dive deep into the economic chess game that's being played on a global scale.
We're going to look at.
How Japan's strategic move against the Fed isn't just about saving their currency, it's about redefining global financial power. We're going to look at the hidden strategies that traders around the world were using and how they're all now unraveling, and of course what all this means for your investments
and your financial future. Now, having this information is going to make sure that you're ready to capitalize on the risks and the opportunities at play, and if you want to protect and grow your wealth.
The two doesn't. So let's go real quick.
If you're new the general, my name is Mark Moss, and I've been investing my own money in these turbulent markets for decades. Now, you know the same smooth sea's never made a skilled sailor.
Well, I've swim in the most turbulent waters.
Now today, on top of making these investing educational videos and coaching thousands of investors on navigating these markets, I'm also a partner in a global hedge fund. In this morning, we are really busy understanding all of this and of course making the corresponding moves. So you're going to get the research fresh right now so you can go make the same moves that you need to make as well.
All right, let's get into this.
All right, we are talking about Japan's desperation, Japan's unexpected move.
Now, we talked about sort of this global supremacy over monetary order.
And really when we think about this, we have to understand that there are just well there's central banks and then there's major central banks. So there's I don't know, one hundred and sixty one hundred and seventy central banks, but there's four major central banks, and they are, of course the Federal Reserve the United States the top of the heap, right, the reserve currency of the world.
Then below that we have the Bank of Japan, which we're talking about here.
We have the ECB, the European Central Bank, and we have the PBOC, we have China. So those are the major central banks. Now, the dollar is a reserve crency the world, so the FED sort of drives the market, but not every country likes that, and so there's this battle for supremacy.
We're going to talk about that. And they did a desperate move.
Now when I say desperate, they did something that nobody thought was possible. Basically, Japan has been the last couple decades of what we call stagflation, the lost decades as they call it in Japan, where basically the markets crashed, everything crashed, and they haven't been able to get any grow. They've had no inflation in the market. So Japan had rates basically at zero. As matter of fact, they had
rates negative for a really long period of time. Just recently we're going to go through this, but just recently they were ady to get them back up to zero and a little bit above zero. Nobody's out they could actually raise them, and they did. They caught everybody off guard, and that's what's causing the whole world to panic right now. And what we can see here, we can see it in this chart right here. You can see how big of a panic, how big of an abrupt move this is.
So the Japanese gen priced in the US dollar have been going down, down, down, down, down, down down for a long period of time, and out of nowhere, look at.
This, it just took off. It top fifteen percent.
When you're looking at currencies, that is a massive move. I know, if you're still looking at bitcoin fourteen percent nothing. That is a big deal for the Japanese inen. And we can really see how big of a move this was made specifically by Japan obviously not just from this chart right here, but if we look at the Dixie chart, So the Dixie the Dollar index is basically measure the dollar against a basket of currencies. So when we look at the dollar overall, of course the dollar goes up
and down. Everything's traded against each other. And we can see that the dollar, the Dollar index that Dixie has dropped, but it's down two percent. Now that's a pretty big candle, two big candles in a row right here, but you could see it sort of within this range. So it all came from Japan. Like I said, in this very desperate attempt that they have all right now, understanding the impossible situation that Japan is in means that you have
to understand the impossible trilemma. Now trilemma is different than a dilemma. Dilemma means that you have, you know, to choose between one or the other. Trilema it means you have to choose two over one. And so the impossible dilemma that not just Bank of Japan has, but every country with a central bank and policy has, is these
three things. Number one, free flow of capital. So now a country wants to have capital counts, capital markets, they want to attract capital, investment, capital businesses to be there, people to invest in the country. But then people also need to get money out of the country. It is one of the problems with China. China is like a black hole where money can come in after to come in, but it can never leave, which is why people don't want to invest there. So you need to have a
free flow of capital in and out. But you also want to have a fixed exchange rate. And then third you need you want a country would want to have an independent monetary policy. You mean they can adjust their monetary policy, they can tighten an ease whenever they want. The problem is that if you get two of these,
you're going to get less of another. So, for example, if you want to fix your exchange rate like what China does, and you want to have independent monetary policy like China, then you can't have an open capital account. If you want to have an open capital account and monetary policy, then you can't have a fixed exchange rate.
The market will dictate what that is.
And so that's sort of the situation that of Japan has found themselves in. Now why is that, Well, Well, first I want to say is that they want to have an independent policy. That's one of the legs of the trilemma. But independent from who would be a question that I'd want to ask, well, independent from.
Of course, the reserve currency of the world.
So we can see in this chart right here, the reserve currency, the US dollar, makes up sixty two percent of foreign reserves, so of course it's going to dictate what the world does. And so Japan has been stuck in this situation where they've been again sort of at the whims of the United States the dollar, and they want to change this. That's the trilimit that they've been in. But how can they try to get all three? Get
that proverbial free lunch. And that brings us to the next part, and that is that the FED has been fighting back. Now, the FED isn't really so much fighting back against Japan or China. Maybe they are a little bit, but really the FED just wants to control its own independent monetary policy. So the FED can set the interest rates, although that's a whole other topic.
If you want me to make a video on that, let me know.
But really the FED is sort of adjusting to what the market wants the rates to be.
That's a whole different topic.
But the FED does or is independent and in force of the United States has open capital accounts. But the problem is that again, because the FED has the dollar, which is sixty two percent of the world's reserve currency, it's dictating the rest of the market. So what happened is, if you remember, the FED started hiking rates. Remember that we were on this monetary easing cycle for so long. Rates had been basically at zero since like two thousand
and eight. They went up a little bit, came back down, and was it November October of twenty twenty one, the FED announced they're going to start raising rates. Then about March of twenty twenty two, they went on the fastest most aggressive rate hiking cycle in history. Now what does that mean for us? Well, if we look at this chart right here.
We can look at Japan.
We can see in this chart right here, this is the Japanese yen again priced in the US dollars. And what I'm showing you in this box right here is at the price the stability between the yen and the dollar had been pretty stable. This is about I think about twenty fifteen right here to twenty twenty two. Yeah, twenty fifteen to twenty twenty two, it had remained very stable in this box. But right here where I put this red arrow is drum roll please, it's March of
twenty twenty two. It's when the FED started going on that aggressive rate hiking cycle.
And so as they started raising rates in the US, it started making the dollar.
Much stronger, and it plunged the Japanese uo all the way down, and it plunged the Japanese yen all the way down. Now, this blip right here is where we're at today. This is what we're talking about. But what's important to understand is that this had been a very stable monetary policy for Japan during this whole period. And during this period about seven year period, people got.
Lulled to sleep.
They thought that Japan would never change, Japan would just stay in the zone. But of course, as the yen started to plunge, then it opened up another trade, a trade that we're going to talk about right Now'm gonna break it down and then you can see this.
Pop right here.
But what happened during that time the yen was plunging. It was getting weaker and weaker and weaker. Now, I like to use if you remember when FTX, the cryptocurrency exchange collapsed, I did several videos on that and I used the fall of FTX sort of as a proxy to understand what's going on in Japan. Something revived that
story here real quick so you can understand this. So you remember FTX was a cryptocurrency exchange, and if you remember what happened during that time, I made a video about it where they had their own token and the problem is that they used that token for collateral, for a lot more debt and to buy other things. But the problem is that their token started to drop in value, and so what FTX was doing is selling all their other assets and buying their token in the market to
try to prop up that token. Eventually, CZ the head of buyinand said, hey, that token's not worth it. We're going to sell that token. We don't want it anymore, and then it started plunging rapidly. FTX was selling everything they couldn't try to buy it at market to keep it from following, but they couldn't. Nobody wanted the token, and this is exactly what's going on with Japan. The japan token stayed relatively stable, but once the FED started
to raise raids, the Japanese token started plunging. Now Japan has been aggressively selling anything they can to buy their token. The Japanese en to prop it up, and that's where we're at now. We can see this happening in real time. The yen weakness persists despite Tokyo's sixty two billion dollar intervention. So the Japanese government is selling the US treasury, selling whatever they can and buying billions, tens of billions of dollars of their own currency at market, trying to prop
it up. But the problem is, just like with the fall of FTX, nobody really wants it, and so we can see it plunging, plunging, plunge as a matter of fact right here. So it went up and came down. This is the first intervention shortly after Yueida is the press conference that saw Japanese rip to one sixty. So they did an an an intervention.
It went up up temporarily.
It worked for a minute, and then it plunged down again, and then they did another intervention. They got it back up again, but it plunged again. So no matter how much they intervene, it has like a sugar rush. It gets up really quickly and then it just falls back down, sort of like where FTX found themselves. But here's the problem. They realizes the problem, and they realize that they're going to have to do something drastic in order to get this to be fixed. So the end is under pressure
even as Japan steps up its verbal warning. So then Japan's like, well, we're dumping tens of billions of dollars. We can get it temporarily. The problem is is all these short sellers, these short sellers are piling in and pushing the price down.
So what we're gonna do?
Japan said they're ready now verbal warning, they're ready to take action on currency if needed. So this is after this was in June twenty thirds, about a month ago, month, a little over a month ago. They're ready to take action on currency if needed. What does that mean, Well, any action that they have to take. They've been trying to buy it back up, and they have about one point two trillion dollars of assets they could sell to
continue to prop up their currency. But they could also just try to shake out all the people that were shorting the market.
Now what do we mean by shorting the market?
This is what you'vebably been hearing about, which is called.
The carry trade.
And so the carry trade was opened up because Japan was stuck in this trilema situation, and so basically the shorts had opened up a carry trade of.
About twenty trillion.
Dollars against the Japanese en. They were selling it short. I'm gonna break down how this works for you, and what we can see is that created a massive risk for the market. As a matter of fact, it says is the Japanese carry trade the next big risk in the market.
This was in January.
People have been talking about this, We've been doing videos on this for a long time.
This has been a big risk.
Japan's government is engaged in a massive twenty trillion dollar carry trade. I mean, imagine how massive that is for a small country like Japan. It says here that is could bring unexpected risks if the central bank titans policy hmmm, which is.
Exactly what just happened.
So the Japanese couldn't buy enough of their token to prop it up. All these short sellers were selling and short putting that downward pressure. Like when cz from Binance they is gonna sell the FTX token and Japan is trying to prop it up, and they're like, well, we may have to do something unexpected unexpected like what well, this in January says right here it could bring unexpected risks if the central bank titans policies, and that's exactly
what happened. We can see right here that the Central Bank of Japan started to do that. So this is going back to two thousand and eight. Right here, the red line is CPI, the yellow line is the Japanese Central banks interest rate policy, and you can see that it was basically flatlined from two thousand and eight. It went down into negative territory right here around twenty sixteen, and it's remained in negative territory.
Just here. In twenty twinty four it.
Got above positive territory and now they raised it just zero point two five percent.
Now, to put this into perspective, the Federal Reserve.
Of the United States raise rates five points. This is only a quarter of one point. And look how much damage this is done. All right, So that's exactly what happened. They raise rates and got unexpected results. Let me show you how this carry trade works.
And why this matters.
So here's how the carry trade works. It's basically arbitrage. What this means is that in the US market, US treasuries let's say that we can earn five percent, okay, over here in Japan.
As I just showed you rates were zero.
So let's say that in Japan I could borrow for let's say zero point eight percent. So I go borrow money in Japan for zero point eight percent. I bring it over to the United States and I park it in treasuries, and I make the difference five.
Percent minus is zero.
Point eight Or I put it into the US stock market, and let's say I put in the SPFI fund, her, I put in the mag sevens, I put it in Vidia, and now I'm making twelve to fifteen to twenty percent minus the eight.
And so more and.
More money kept getting borrowed. Selling the end short and all that money was finding its way into stronger markets, mostly into the United States and the stock market, into Nvidia, into US treasuries.
It's been great.
But here's the problem. A lot of this money was put in there on margin. So that means that they would borrow one thousand dollars from here, and they would take it over here and they would buy let's say five thousand dollars worth of stuff, or maybe maybe more, it depends on what their credit is maybe ten thousand dollars worth of stuff. But the problem is is this unwinds very quickly for two reasons. As long as this Japanese rate kept getting lower lower, lower, lower, lower.
Lower, everything was great, right.
This debt kept getting cheaper, cheaper, cheaper, more money kept coming over, and these assets went higher higher higher. The problem is the unexpected results. When Japan raised the rates, and only by raising him only zero point two five percent, this whole thing started to unwind. When these rates went up, all of a sudden, the interest that was owed went up. And when that happened, some of this had to start selling off to now pay for this.
And as this.
Started to sell off, the asset prices started to go down. As the asset prices to go down started to go down on stuff that was on margin, then the margins were called and they had to post more collateral to post more colladal, they had to sell more. When they sold more, prices went down even more, which then mean more margin calls. It means they had to sell more to post more collateral. And all the while they were selling this creating this downward pressure, this was getting more
and more expensive, and this whole thing started to wind down. Now, this was great for so long because for twenty years they kept rates at zero and they just continued to stay low and get lower lower lower. But again the unexpected did shift to try to shake off these short sellers put the entire market into a tailspins. That's where we wrap now, confronting Godzilla.
Where do we go from here?
All right, the elephant in the room, if you will, we'll call it Godzilla because it's Japan.
So where do we go from here? What happens?
Can Japan really continue to raise their rates? What happens to the US markets? What happens to the four central banks that are now fighting against each other. Well, what Japan is doing is somewhat necessary, but it comes with a very steep cost. So they have all these short sellers that have piled in pushing the currency down and doing this carry trade over into the United States. They need to shake them off. They need to get rates back into positive territory.
But the problem is it comes at a steep cost.
It comes at the cost of wrecking the global markets. The bigger problem is that Japan is one of the most indebted nations in the world, with a two hundred and sixty three percent debt to GENP. Now, put that into comparison, the US is about somewhere in one hundred and twenty percent range. They're at two hundred and sixty three percent, and not just the government, the private debt is one hundred and twenty percent of debt to GDP. So the problem is is that they want to sort
of normalize their policy with the Federal Reserve. But the problem is is that the FED is that's, you know, five percent, and they're at zero point two five. They may have to hike another thirteen forty It depends on how fast they hike, but thirteen more times to even get anywhere normalized with the FED. And if it the whole world is melting down over a quarter point hike. What do think happens if they go with a three
four five percent hike? Now, the bigger problem is this right now currently, if they were to normalize the policy with the FED, that means they would be paying thirteen percent of their gross domestic product of their GDP just
for interest on the debt. Now, to put this into perspective of the United States, you've seen I have done many videos on this, the interest on the debt has gone up parabolic, and as a matter of fact, in the United States, we're now spending a trillion dollars, more than a trillion dollars just on the interest on the debt, and the interest on the debt has now exceeded the cost that the US spends on the US military, which, of course, the US military spends more than the next
ten nations combined. But even as crazy as that number.
Is, it's about three percent of GDP. So for Japan to try to do.
What's necessary and try to normalize policy, they'd be spending thirteen percent. The problem is they can't do that, and so they want to confront Godzilla. But Godzilla might just be too big for them. So which path are they going to take? Are they going to fight Godzilla or are they just going to go back into their hole? And really we can see that the entire system is buckling as they.
Weigh these two decisions.
So their choices are one, do we have a currency crisis, do we continue to let the end just fall plunge plunge, plunge, plunch plunge, or do we try to save the currency, fight off the short sellers and have a deflationary crisis. Those are choices, those the sides of the coin heads or tails. They can choose what they want, not unlike what FTX had to choose, and not unlike which.
The US is going to have to choose.
At some point, the US is going to have to choose. Right now, would we rather have another great depression, a deflationary crash where jobs are wiped out, people are homeless and on food lines, that the stock markets wiped out, the real estate markets wiped out, we go into another twenty year great depression period? Or do we have a great debasement where let's just go pren trillions more dollars. Now,
let's just put assets assets sky high. This is the same decision the US is in, which is the same decision that.
Japan is in.
Do the markets crash or do taxes crash? You see, if the markets crash, if we choose option one, a great depression, then what happens, Well, nobody's working, and so with nobody working, then there's no taxes being paid. If the stock market crashes, if the real estate market crashes, then there's no capital gains taxes, and then there's no taxes.
To the government.
Now, the government's already running multi trillion dollar deficits today. If we go into just even a garden variety recession, we'd expect to see tax receipts plunged somewhere between twelve to fifteen percent. Now, the Treasury just announced a couple weeks ago that just the borrowing for the rest of this year, which is not even half left. They need another one point seven trillion just for this year. So if taxes garden variety recession crashed by fifteen percent, they have.
To borrow it more.
If we have a great depression style, how will the government survived? Now, what's going to happen, obviously would be that they would have to continue printing money for the government and more stimulus, more welfare, and more importantly, to continue to run those deficits. All of that money printing will be highly inflationary. So you know, I think about twenty twenty.
Remember twenty twenty.
And what happened in twenty twenty, Well, the whole country was shut down, not because the recession, but because the government forced to shut down. The government then was forced to inject money, print stimulus money and inject.
It directly in the economy. Trillions of dollars. And what happened.
Homes went up by fifty percent, Stocks went up by fifty percent.
Bitcoin went to the moon.
So did your gasoline, and so did your steak, and so did your houses as well. And so I think about twenty twenty, and I think this is where we're going now in my opinion, Well, it's not my opinion based off of factual observation. If we look at every government in the world today and sort of every experiment in the past, every government in the past, there hasn't been an experiment that I've seen where a nation decided, well, boys, pack it in. It was a good run while we
had it. Let's just shut her down. Not when there's still inking.
The money printer.
And so I believe that they'll turn that money printer back on and we'll print it sky high. They will always choose a currency crisis and a great debasement over the alternative, and that is inflation. Now, the thing about when this inflation shoots sky high is that doesn't push all asset prices up evenly. For example, the Nasdaq went up by about double what the S and P five hundred did. Bitcoin went up about five six hundred percent on top of that, right, and so there's different ways
of these different assets to interact. Now, if you'd like to see the playbook for this. We're in the middle of what I'm calling a Q wave, a quantum wave leap in technology, and this inflation that we're about to see thrust into the market is going to make twenty twenty look like chump change, and it's going to drive asset prices too.
High as we've never imagined.
Come hang out with me live. I got about twenty or thirty short charts that I want to show you so you can understand how each one of these cycles is very predictable and it lays out exactly what assets we should invest do. I call it the investing black hole because there's really no other place you put your money. And I'm gonna give you the top five assets I'm checking out.
It's free.
There's a link down below if you want to come hang out and hang out with me. I'll answer all your questions live to make sure you have it. But either way, this is what's going on in Japan. It's just like FTX was an example of Japan. Japan is an example of the rest of the world. We're really witnessing this in real time, and the entire world, one by one. The Great Milkshake Theory is going to see each nation forced to choose one of these three things.
And as I said, every example in current and past history shows which path they take. All right, let me know what you think in the comments down below.
Thumbs up. I feel like this video.
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