Japan's Rate Hike Wave Could Trump US-Iran Tensions for S&P500

The S&P500 index may be influenced more by Japan's inflation and Bank of Japan (BOJ) rate hikes than by the US-Iran conflict. The BOJ is likely to raise rates towards 2% to end negative real rates soon, narrowing the Japan-US yield spread significantly.

This shrinkage in the yield spread threatens the profitability of the Yen-carry trade, risking a global liquidity drain. Investors should consider Japanese financial, insurance, and trading house stocks as they can outperform if Japan hikes rates more.