[Finance] Bank of Japan Announces Interest Rate Hike, Will the Yen Return? Expert: AI Still Dominates Market Funds

The Bank of Japan (BoJ) announced today (16th) that it will raise its benchmark interest rate by 25 basis points to 1%, the highest since 1995. In the past, when Japan raised interest rates, there was a large-scale resurgence of overseas yen carry trade, triggering a chain reaction of sell-offs in global stock markets. Lin Qichao, Chief Economist at Cathay Financial Holdings, stated today (16th) that judging by the yen's performance today, the appreciation is not significant, and it appears that AI is still dominating market funds. #Please listen to reporter Chen Linxinghong's report# Japan has maintained zero interest rates for a long time. The vast number of retail investors, known as "Mrs. Watanabe," including Japanese housewives and individual investors, have taken advantage of Japan's low-interest-rate environment to borrow yen, convert it into foreign currencies, and invest in overseas high-yield assets. In July 2024, when the Bank of Japan raised interest rates to 0.25%, the yen appreciated by 7.5% in two weeks, causing the Nikkei index to plummet by 12.4% in a single day, triggering a chain reaction of sell-offs in global stock markets. The market is now highly concerned whether this interest rate hike by the Bank of Japan will once again stir up a storm of asset repricing. Lin Qichao, Chief Economist at Cathay Financial Holdings, pointed out on the 16th that this interest rate hike by the Bank of Japan was expected, and the market has already reacted in advance. Furthermore, this rate hike is primarily aimed at curbing short-term inflation. After all, Japan's Producer Price Index (PPI) has already exceeded 6%, which also makes the Bank of Japan worry that it will gradually spill over to the consumer side. Import inflation has also begun to rise, and the Bank of Japan indeed needs to prepare for inflation through interest rate hikes. Lin Qichao also pointed out that with this Japanese interest rate hike, the yen has not seen the significant appreciation that people might have imagined. After all, Japan's quantitative easing policy is expected to continue until April next year, and it will still involve purchasing 2 trillion yen in government bonds every month. The yen's movement currently seems to follow the monetary policy of the US Federal Reserve. Regarding the possibility of a repeat of the "yen carry trade" storm, Lin Qichao believes that AI is still dominating market funds at present. Lin Qichao said: "(Original sound) Looking at these countries, Taiwan and South Korea are the most obvious recipients of AI funds. Japan also has AI-related industries, including its largest company by market capitalization, Kioxia, which is valued at over 320 billion US dollars. Therefore, looking at the overall picture, AI is the primary driver of the Japanese stock market this time, and it has a relatively low relationship with monetary policy. The driving force is the momentum of AI capital funds." As for whether the "sweet price" for Taiwanese people buying yen due to Japan's interest rate hike might come to an end, Lin Qichao believes that the current exchange rate of 5.08 yen per New Taiwan dollar is already "very, very sweet." If international oil prices return to normal in the second half of the year and the US does not raise interest rates, the New Taiwan dollar and other Asian currencies still have room for slight appreciation. The New Taiwan dollar and the yen have the opportunity to maintain this exchange rate for a period of time. (Editor: Song Wanyuan)