00:00Borrowing money cheaply might be harder now.
00:03The BOJ raised its interest rate by a quarter point to 1.25% on Friday, making it more expensive
00:09to borrow in yen and invest in higher yielding assets like U.S. Treasuries.
00:13After the BOJ split decision, however, the yen declined against the dollar and further
00:19weakened during Governor Kazuo Ueda's briefing, as it was seen as less hawkish than expected.
00:25This is the BOJ's fastest pace of rate hike since 1990.
00:28Back then, Japan was raising rates to rate in a massive asset bubble, including soaring
00:33real estate prices.
00:35This time, the BOJ is dealing with inflation risks and a weak yen, while also facing pressure
00:40from Washington to raise rates.
00:42U.S. Treasury Secretary Scott Besant has repeatedly called for action to bolster the yen.
00:47But why does the U.S., or global markets for that matter, care?
00:51For years, Japan's ultra-low interest rates made the yen one of the cheapest currencies
00:55in the world to borrow.
00:56So, when Japanese rates rise, that shrinks the gap between Japan and U.S. yields, making
01:02yen-funded trades less attractive.
01:04Investors may then start unwinding their positions, which means selling assets elsewhere.
01:08If that happens quickly, it can amplify swings across global markets.
01:12Japan is also the biggest foreign holder of U.S. government debt.
01:16As yields rise at home, Japanese bonds become relatively more attractive, potentially reducing
01:21demand for treasuries.
01:22That could put upward pressure on U.S. yields and, in turn, borrowing costs elsewhere.
01:27So, the big question for global markets now is how quickly the BOJ hikes from here, especially
01:32after the U.S. Federal Reserve's rate increase this week.
01:35And what happens as one of the world's biggest sources of cheap money becomes less cheap?
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