All articles tagged with #global financial markets
The Bank of Japan is considering lifting rates for the first time in years, with swaps pricing a 57% chance of a rate hike at the upcoming meeting. Rising Japanese rates could have global impacts on bond yields and currency markets, as seen in the past. If the BOJ moves to increase rates, it could lead to a tightening of global financial conditions, affecting markets worldwide.
While the chances of the U.S. defaulting on its debt are shrinking, risks remain for the banking system and global financial markets. The U.S. markets and the economy are still facing uncertainty, and a default would be a disaster. Every financial instrument in the world is priced off of the risk-free rate of U.S. debt, and a default would risk sending short-term yields higher, while riskier assets and the dollar would likely fall. Lawmakers appear to be closer together on avoiding a default, but the government may not be able to pay all its obligations as early as June 1 if a deal is not reached.
Millions of Americans who rely on federal payments could be negatively impacted if the US government is unable to pay its bills come June 1. Economists agree that the first debt default in US history would be an economic catastrophe and could trigger a global financial crisis. Payments to 67 million Social Security beneficiaries could be halted, but a 1996 law provides an escape clause that allows the Treasury Department to continue paying Social Security benefits, even if there is a delay in raising the debt ceiling. The US credit rating would most likely be downgraded, sending interest rates higher and making it more expensive for businesses and consumers to borrow money.
The Bank of Japan's decade-long policy of ultra-low interest rates and bond-buying has led to Japanese investors owning over two-thirds of the country's economy in offshore investments, including US government bonds and European power stations. However, with a new governor, Kazuo Ueda, set to take over, the policy is likely to be dismantled, leading to a flow reversal that could send shockwaves through global financial markets. The shift is already underway, with Japanese investors selling a record amount of overseas debt last year as local yields rose on speculation that the BOJ would normalize policy.