Japan Interest Rate Hike - Black Swan Panic Event Incoming?

Stock-Markets / Financial Markets 2025 Jan 23, 2025 - 07:47 PM GMT

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Stock Market Brief - Possible Black Swan Event at 2am GMT 24th Jan 2024.

The Trump pump has the Stock market flying high, bitcoin flying high, US Dollar coming off it's high, which are ideal conditions for the markets to be hit by a black swan panic event, one of where greed suddenly turns into panic resulting in a sharp sell off that catches almost everyone by surprise, only those with the foresight to have limit orders in place in out of hours trading can fully capitalise on such events as was the case on August 5th 2024 that could repeat in a matter of hours.

The yen carry trade panic which whilst being a nothing burger in terms of the primary direction of travel of the stock market nevertheless triggered a significant correction of just under 10% and thus gave short lived buying opps in target stocks and so something similar could repeat Friday morning at 2am GMT as it has become increasingly likely during that Japan facing with a wage price spiral with wages expected to rise by 4.5% during 2025 will raise interest rates by at least 0.25% Friday to 0.5%, that's a 100% hike in the rate of 0.25%!

The rate hike risks triggering an unwinding of the Yen carry trade, where folk in Japan borrow in Yen to Invest in dollar assets which thus pushes the dollar and dollar assets higher, which is necessary given that the US operates a huge trade deficit in excess of 3% of GDP thus needs perpetual foreign demand for US dollars thus the panic event is in anticipation of the Yen borrowers unwinding their positions so a case of the the self fulfilling prophecy for which we have already seen signs of this week as the dollar comes off it's $110 high as it retreats from resistance as both stocks and the dollar are primed FOR NEGATIVE EVENT that need not be the Yen carry trade unwind, it could just as well by Trump announcing his tariffs on the 1st of Feb that once more could result in a self fulfilling prophecy panic event once folk crunch the numbers of what it implies for import prices and the trade deficit thus less demand for US Dollars and thus discount economic weakness by selling risk on assets such as stocks and crypto. In fact Bitcoin itself is coming off a new all time high at $110k is also primed for a panic event. We already had a mini dip on Tuesdays open that spooked some which was a case of the Trump inauguration sell the news event.

In terms of trend there is my forecast for the S&P to target a swing to 6XXX, and then there are a series of black swan events lining up to take their shot at the bulls eye the implications for which are that risk assets such as stocks and crypto go down and bonds go up. This illustrates that volatility increases towards the latter stages of a bull market so all those folk wanting the S&P to get to x price by y date are just setting themselves up to get punched in the face!

We are in a bull market that is going to experience a lot of volatility during 2025 where my base case is that it will end 2025 north of 7XXX, now many folk who think they are smarter then what they actually are think they can trade the volatility, i.e. wanting to know which way the S&P will next swing by 5%, despite everything I state about 5% swings being NOISE! But fools will remain fools and not listen or learn the way the game should be played which is to trim into over valuation and accumulate into under valuation, yes S&P should trend higher into year end, but that does not mean one can trade every 5% swing with military precision, to the contrary the market will repeatedly punch you in the face so by year end despite stocks being higher you will have lost money trying to swing trade the volatility.

Anyway I am seeking to factor in black swan's volatility into what my S&P nothing burger expectations of what it could do over the next few months in terms of the direction of travel in my next article to be posted later today (Thursday 23rd Jan).

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Nadeem Walayat
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By Nadeem Walayat

http://www.marketoracle.co.uk

Nadeem Walayat has over 35 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

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