By
Godfrey Benjamin
June 17th, 2024
Arthur Hayes said that Japanese banks engaged in USTs will start selling the bonds, resulting in “another pillar of the crypto bull market.”
Arthur Hayes, one of the co-founders of the BitMEX crypto derivatives exchange, has published a new article titled “Shikata Ga Nai”, focusing on the economic relations between the United States and Japan and the potential impact on the crypto sector and other risk assets.
Shikata Ga Nai by Arthur Hayes
In his article “Shikata Ga Nai”, which translates to “it cannot be helped”, Hayes described how “deadbeat Japanese banks have fallen victim to the monetary policies of Pax Americana”, According to him, Japanese banks engaged in a dollar-yen carry trade via the US Treasury (UST) in order to earn significant yields on their yen deposits, since the yield on all “safe” government and corporate bonds was almost zero.
However, Hayes said that due to the COVID pandemic, inflation rose, and as a result, the United States Federal Reserve had to increase interest rates at the fastest pace since the 1980s. The rising rates were devastating news for anyone who held USTs. Hayes added:
“From 2021 to 2023, the rising yields produced the worst bond round since the War of 1812. Shikata Ga Nai!”
While the US bailed out leading American banking institutions with huge holes in their balance sheets, the Japanese banks that held UST were at risk. As a result, Hayes noted that Norinchukin (Nochu), the 5th largest Japanese bank by deposits, “will dump $63 billion worth of foreign bonds, the majority of which are USTs.”
According to Hayes, every Japanese bank that engages in a similar trade involving USTs will start selling their bonds. As per the International Monetary Fund, these banks held around $850 billion in foreign bonds going into 2022.
The BitMEX executive said that Japanese banks are selling these holdings because, prior to 2023, the differential between the USD and yen was negligible, but now “the cost of hedging the dollar exposure embedded in a UST outweighed the higher yield offered.”
“Nochu is getting spit-roasted harder than an FTX/Alameda polycule participant. On a mark-to-market basis, the USTs bought most likely in 2020–2021 are down 20%–30%. In addition, the FX hedge cost has gone from negligible to over 5%,” wrote Hayes.
Effect on Risk Assets
To sum up the article, Hayes believes that the Japanese banks selling USTs “will force the Federal Reserve to turn on the printing press, which will drive growth in risk assets.” He compared the situation to September to October 2023, where the UST yield curve steepened, causing 10-year and 30-year USTs to trade at yields above 5% while the S&P 500 dropped a whopping 20%. However, at the same time, Bitcoin and other cryptocurrencies rallied starting in November 2023, and the rally continued until March because of the approval of spot Bitcoin exchange-traded funds (ETFs) by the Securities and Exchange Commission (SEC).
“Just as many began to wonder where the next jolt of dollar liquidity would come from, the Japanese banking system dropped Origami cranes composed of crisply folded dolla bills upon the laps of crypto investors. This is just another pillar of the crypto bull market,” Hayes added.
Additionally, Hayes also recently predicted that Aptos (APT) will flip Solana (SOL) in the near future as the number 2 L1 chain after Ethereum (ETH). Hayes is a strong critic of the Federal Reserve and the traditional finance system and has often published articles speaking about the malpractices and manipulations organized by the central banks.