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 a very bold step that nobody thought that they could or that they would do this.

And basically, they raised interest rates against all odds. Now, this was a direct challenge to the Federal Reserve’s 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, you know, if you want to protect and grow your wealth, which who doesn’t? So let’s go real quick. If you’re new to the channel, 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 seas never made a skilled sailor. Well, I’ve swam 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. And 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, so 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, they’re central banks, and then there’s major central banks. So there’s, I don’t know, 160, 170 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. All right, so those are the major central banks.

Now, the dollar is the reserve currency of the world. So the Fed sort of drives the market, but not every country likes that. 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 growth. They’ve had no inflation in the market.

No, so Japan had rates basically at zero. As a 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 able to get them back up to zero and a little bit above zero. Nobody’s out there 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 the Japanese yen priced in US dollar had 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’s up 15%. When you’re looking at currencies, that is a massive move. I know if you’re used to looking at Bitcoin, 14% is nothing. That is a big deal for the Japanese yen. 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 measuring 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 trading against each other. And we can see that the dollar, the dollar index, the Dixie has dropped, but it’s down 2%. That’s a pretty big candle to two big candles in a row right here. But you can see it’s 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. Trilemma 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 accounts, 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.

This is one of the problems with China, China’s like a black hole where money can come in, assets 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. Meaning they can adjust their monetary policy. They can tighten the knees 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 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 62% 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 tri limit 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 of course, the United States has open capital accounts.

But the problem is that, again, because the Fed has the dollar, which is 62% 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 2008. They went up a little bit, came back down. And was it November, October of 2021, the Fed announced they’re going to start raising rates. Then about March of 2022, 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 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 2015 right here to 2022. Yeah, 2015 to 2022. And 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 2022. 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 euro 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. That’s 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, I’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.

Somebody 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 use that token for collateral for a lot more debt and to buy other things. But the problem is, 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 Binance said, hey, that token is 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 could to try to buy it at market to keep it from falling, 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 rates, the Japanese token started plunging. Now, Japan has been aggressively selling anything they can to buy their token, the Japanese end, 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 $62 billion intervention. So the Japanese government is selling US Treasuries, 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, plunging. As a matter of fact, right here. So it went up and came down. This is the first intervention shortly after Ueda, the press conference that saw Japanese ripped to 160.

So they did an intervention. It went 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 realize is 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 yen 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 up temporarily. The problem is, is all these short sellers, these short sellers are piling in and pushing the price down. So what we’re going to 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 23, about a month ago, a 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 a backup and they have about $1.2 trillion of assets they could sell to continue to prop up their currency. But they what do we mean by shorting the market? This is what you’ve probably been hearing about, which is called the carry trade. And so the carry trade was opened up because Japan was stuck in this trilemma situation. And so basically, the shorts had opened up a carry trade of about $20 trillion against the Japanese and they were selling it short, I’m going to break down how this works for you.

And what we can see is that 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 $20 trillion 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 tightens policy.

Hmm, 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 a short putting that downward pressure like when CZ from Binance is going to sell the FTX token. And Japan’s 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 tightens 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 2008 right here. The red line is CPI. The yellow line is the Japanese central bank’s interest rate policy. And you can see that it was basically flat line from 2008. It went down into negative territory right here around 2016. And it’s remained in negative territory. Just here in 2024, it got above positive territory. And now they raised it just 0.25%. Now to put this into perspective, the Federal Reserve of the United States raised rates five points. This is only a quarter of one point. And look how much damage this is done.

Alright, so that’s exactly what happened. They raised 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 5%. 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 0.8%. So I go borrow money in Japan for 0.8%. I bring it over to the United States and I park it in Treasuries.

And I make the difference 5% minus 0.8. Or I put it into the US stock market. And let’s say I put in the S&P 500, I put in the MAG 7, I put in Nvidia, and now I’m making 12, 15, 20% minus the 8. And so more and more money kept getting borrowed, selling the yen 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 $1,000 from here. And they would take it over here and they would buy, let’s say $5,000 worth of stuff, or maybe, maybe more, it depends on what their credit is, maybe $10,000 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, 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 them only 0.25%, 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 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 collateral, they had to sell more. When they sold more, prices went down even more, which didn’t 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 20 years they kept rates at zero and they just continue to stay low and get lower, lower, lower. But again, the unexpected shift to try to shake off the short sellers, put the entire market into a tailspin. So that’s where we’re at. 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 263% debt to GDP. Now I’ll put that into comparison. The US is about somewhere in the 120% range. They’re at 263% and not just the government. The private debt is 120% 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 at 5% and they’re at 0.25. They may have to hike another 13, 14, it depends on how fast they hike, but 13 more times to even get anywhere normalized with the fed. And if the whole world is melting down over a quarter point hike, what do you think happens if they go with a 3, 4, 5% 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 13% of their gross domestic product, of their GDP, just for interest on the debt.

Now to put this into perspective, the United States, as you’ve seen, I’ve 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 10 nations combined. But even as crazy as that number is, it’s about 3% of GDP.

So for Japan to try to do what’s necessary and try to normalize policy, they’d be spending 13%. 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? 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 yen just fall, plunge, plunge, plunge, plunge, plunge? Or do we try to save the currency, fight off the short sellers and have a deflationary crisis? Those are choices.

Those are 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, real estate markets wiped out, we go into another, you know, 20 year Great Depression period. Or do we have a great debasement where let’s just go print trillions more dollars, and let’s just put 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 plunge somewhere between 12 to 15%.

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 1.7 trillion, just for this year. So if taxes garden variety recession crashed by 15%, they have to borrow a bit more. If we have a Great Depression style, how will the government survive? 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 2020, remember 2020. And what happened in 2020? 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 50%. Stocks went up by 50%. 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 2020. 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 ink in the money printer. And so I believe that they’ll turn that money printer back on and we’ll print it sky high, they’ll 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 it doesn’t push all asset prices up evenly. For example, the NASDAQ went up by about double what the S&P 500 did. Bitcoin went up about 5600% on top of that, right? And so there’s different ways that these different assets 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 2020 look like chump change. And it’s going to drive asset prices to highs we’ve never imagined. Come hang out with me live, I got about 20 or 30 chart 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 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.

Alright, let me know what you think in the comments down below. Thumbs up if you like this video, if you don’t even give me a thumbs down. That’s okay. But at least tell me why in the comments down below. Subscribe if you’re not already subscribed. And that’s what I got right to your success. I’m out
[tr:trw].

See more of Mark Moss on their Public Channel and the MPN Mark Moss channel.