Japan's Silver Effect: Why the BOJ Interest Increase Can Be Fuel

[Igor Pereira]

Many traders focus exclusively on the Federal Reserve, but the true "black swan" – or the great opportunity – may be coming from the East. The market already provides for a probability of 99% that the Bank of Japan (BOJ) increases its interest rates.

By Igor Pereira Financial Market Analyst

However, the news is not the increase itself, but the devastating side effects it may have on global liquidity. For precious metal operators, specifically Silver (XAG / USD), this changes the game completely.

The End of Free Money: The Carry Trade in Danger

Tonight at 12:30 p.m. in BrasiliaIf the BOJ confirms an increase in +25 bps (base points), the immediate impact will be on the famous JPY Carry Trade. For years, investors took cheap loans in Yen to leverage positions in other markets.

When Japan fastens its belt:

• Dry Global Liquidity: The cost of money rises, forcing the closure of these leveraged positions around the world.

• Forced Delagging: We see a liquidation of "paper assets" (shares, speculative securities) to cover margins.

Historically, this environment of financial stress favors real assets (Hard Assets) to the detriment of paper assets.

There is a common misconception that Silver is just a "risk" asset (risk-on) that falls when liquidity tightens. In this specific scenario of monetary stress added to physical scarcity, Silver changes its personality:

1. Monetary behaviour: She stops acting like an industrial commodity and starts acting like money, serving as a protection against the instability of the trust system.

2. Non-Linear Impact on Dollar: A stronger yen, even with a modest BOJ movement, causes a disproportionate impact on the financing conditions in USD. This generates stress in the banking system, which historically drives precious metals.

The monetary tightening of the BOJ means less liquidity, more stress and forced changes in positioning in large funds. For the inattentive analyst, this looks bad for commodities.

But for us at ExpertFX School, reading is another: That's not a silver bass player. It is precisely at this moment of liquidity chaos that Silver regains its historical brightness as a strong currency in the medium and long term.

Prepare for volatility in the USD/JPY pair, but keep an eye out for XAG/USD and XAU/USD opportunities.

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