The exchange rate between the US dollar and the Japanese yen is the most important macroeconomic indicator. In a previous article called “Easy Button,” I mentioned the need to take measures to strengthen the yen. I proposed a solution where the Federal Reserve (Fed) could exchange an unlimited amount of newly printed US dollars with the Bank of Japan (BOJ) in exchange for yen. This way, the BOJ could provide unlimited firepower to the Japanese Ministry of Finance (MOF) to buy yen on the global forex market.
Although I still believe in the effectiveness of this solution, the central bank scammers responsible for the “Group of Fools” (also known as the Group of Seven (G7)) seem to be trying to make the market believe that over time, the interest rate differential between the yen and the US dollar, euro, pound, and Canadian dollar will narrow. If the market believes in this future state, they will buy yen and sell all other currencies, mission accomplished!
To make this magic work, central banks of the G7 countries with “high” policy rates (Fed, European Central Bank, Bank of Canada, and Bank of England) must lower interest rates.
It is worth noting that the policy rate of the Bank of Japan (BOJ) (green) is 0.1%, while other countries have policy rates of 4-5%. The interest rate differential between domestic and foreign currencies fundamentally drives exchange rates. From March 2020 to early 2022, all countries were playing the same game. As long as you don’t leave the house when you’re sick, inject mRNA heroin, everyone can make money for free. When inflation shows up in such a huge way that elites can’t ignore the pain and suffering of the common people, all G7 central banks, with the exception of the Bank of Japan, actively raised interest rates.
The Bank of Japan cannot raise interest rates because it holds over 50% of the Japanese government bond (JGB) market. As interest rates fall, Japanese government bond prices rise, making the Bank of Japan appear solvent. However, if the Bank of Japan allows interest rates to rise, causing the Japanese government bonds it holds to fall, this highly leveraged central bank will suffer catastrophic losses. I did some terrible math calculations for readers in the “Easy Button” article.
Therefore, if the “bad woman” Yellen, who issues orders in the G7, decides to narrow the interest rate spread, central banks with “high” policy rates will only have the option to lower interest rates. According to orthodox central bank thinking, lowering interest rates is a good thing if the inflation rate is below the target. What is the target?
For some reason, I don’t know why, all G7 central banks have an inflation target of 2%, regardless of cultural, growth, debt, population, and other differences. Is the current inflation rate rapidly exceeding 2%?
Each colored line represents the inflation target of different G7 central banks. The horizontal line is at 2%. No G7 country has officially reported manipulated, dishonest inflation statistics below the target value. Putting on my technical analysis hat, it seems that the inflation rates of G7 central banks are forming a local bottom in the range of 2-3%, then will break out explosively.
Considering this chart, orthodox central bank governors may not cut rates at the current level. However, this week, the Bank of England and the European Central Bank lowered interest rates despite inflation being above the target. This is strange. Is it financial turmoil that requires cheaper money? Not really.
The Bank of England lowered its policy rate (yellow), while inflation (white) was above the target (red).
The European Central Bank lowered its policy rate (yellow), while inflation (white) was above the target (red).
The problem lies in the weak yen. I believe the “bad woman” Yellen has stopped the interest rate hike performance. Now is the time to start maintaining the global financial system led by the United States. If the yen does not strengthen, the Chinese will unleash the dragon of yuan devaluation to match their major export competitor Japan’s super cheap yen. In this process, US Treasury bonds will be sold, and if this happens, the American Association of Great Unity will be in trouble.
Next Steps
The G7 will hold a meeting in a week. The statement released after the meeting will be of great interest to the market. Will they announce some coordinated currency or bond market manipulation actions to strengthen the yen? Or will they remain silent but agree that everyone except the Bank of Japan should start lowering rates? Stay tuned!
The biggest question is whether the Fed will start lowering rates as the November US presidential election approaches. Normally, the Fed does not change course close to an election. However, normally, favored presidential candidates do not face potential imprisonment, so I am prepared to be flexible with my ideas.
If the Fed lowers rates at the upcoming June meeting, and their preferred manipulated inflation index is above the target, the US dollar against the Japanese yen will plummet, meaning the yen will strengthen significantly. I don’t think the Fed is ready to lower rates, as the slow-burning Joe Biden is being questioned in opinion polls due to rising prices. It is understandable that Americans are more concerned about the rising prices of the vegetables they eat than the cognitive abilities of vegetables running for re-election. Fair to say, Trump is also a vegetable because he likes to munch on McDonald’s fries while watching “Shark Week”. I still believe that cutting rates is political suicide. My fundamental view is that the Fed will stay put.
On June 13th, when these second-rate actors sit down to enjoy a lavish feast paid for by taxpayers, the Fed and the Bank of Japan have already held their policy meetings for June. As I mentioned earlier, I expect the Fed and the Bank of Japan not to change their monetary policies. The Bank of England will hold a meeting shortly after the G7 meeting ends, and while it is widely expected that they will keep policy rates stable, considering the rate cuts by the Bank of England and the European Central Bank, I think they will unexpectedly lower policy rates. The Bank of England has nothing to lose. The Conservative Party will be trounced in the next election, so there is no reason to defy the orders of the former colonial rulers to suppress inflation.
Helicopter Money
The June central bank drama, kicked off by rate cuts from the Bank of England and the European Central Bank, will lift cryptocurrencies out of the doldrums of the northern hemisphere summer. This is not the fundamental situation I expected. I thought the fireworks would start in August, around the time of the Jackson Hole symposium hosted by the Fed. That is usually the place where sudden policy changes are announced entering the fall.
The trend is clear. Central banks around the world are starting a loose cycle.
We know how to play this game. Since 2009, we have been playing this damn game, when our savior Satoshi gave us the weapon to defeat the devil of TradFi.
Long Bitcoin, then shitcoins.
The macro situation has changed compared to my baseline. Therefore, my strategy should also change accordingly. For the Maelstrom investment portfolio project, they sought my opinion on whether to launch tokens now or later. My advice is: “Get the hell out now!”
For my surplus liquidity in synthetic USD cash (also known as Ethena’s USD (USDe)), which is earning some hefty annual rates, it is time to redeploy it into faith-based shitcoins. Of course, I will tell readers what they are after I buy them. But I just want to say that the bull market in cryptocurrencies is waking up and will soon skin and debone the profligate central bank governors.
Tags
Arthur Hayes
Cryptocurrency
Central Banks
Bitcoin
Bull Market
Federal Reserve
Inflation
