How much of a brake can the Fed's interest rate cut put on the yen's interest rate hike? The answer might be surprising: it can only be considered a stopgap measure, not a fundamental solution.

First, let's look at the surface — lowering interest rates can indeed provide some relief. When Japan's medium to long-term interest rates rise, global players who borrow in yen fear two things the most: a compression of interest rate differentials and the return of financing. When the Fed lowers interest rates at this time, it effectively relieves pressure on the dollar side: the cost of borrowing yen to buy U.S. Treasuries and U.S. stocks decreases, and the pressure for forced liquidation is reduced. Liquidity can also catch its breath, preventing sudden market withdrawals that could trigger a series of liquidations.

But this only temporarily stabilizes the situation.

The issue is that this time in Japan, it is not a short-term fluctuation but a structural shift. Pension funds, life insurance companies, and banks—these traditional big players are starting to recalculate. For the past decade or so, they have been pouring money into U.S. assets because domestic interest rates were close to zero. Now that Japanese interest rates have risen, why wouldn't the money come back home? This cyclical return cannot be stopped just by the Fed cutting rates a few times.

In the short term, lowering interest rates can stabilize sentiment and support risk appetite, avoiding a stampede-like sell-off. But what about the long term? The trend of rising interest rates in Japan will not change, and global liquidity will still be under pressure.

However, interestingly, the repatriation of Japanese funds does not mean that global funds have all withdrawn. Structural opportunities in AI and technology are still there. European money, Middle Eastern money, and domestic U.S. funds may take over. Even Japanese institutions, after calculating, may find that certain U.S. assets are still worth holding, and will similarly keep a portion of their positions.

In simple terms, the Fed's interest rate cuts are more like a shock absorber for global liquidity, mitigating the impact but not changing the direction. The real variable will depend on how high Japanese interest rates can rise and the market's pace of digesting this structural change.