Why Fundamentals Matter in Finance
Understanding why mastering fundamentals is the foundation for recognizing market changes and navigating increasingly complex financial markets
Finance is Relative, Not Absolute
Unlike physics or mathematics, finance operates in a world of relative relationships. There is no "correct" value for a 10-year JGB yield—only a value relative to inflation expectations, growth forecasts, BOJ policy, global interest rates, and investor risk appetite. Understanding fundamentals gives you the baseline to recognize what changed and why.
The Question Always Starts with “What Changed” and Ends with “Why”
- Observe the change: USD/JPY moved from ¥145 to ¥150
- Check the fundamentals: What does theory say drives FX? Interest rate differentials, trade balance, risk sentiment
- Measure each factor: Did the Fed/BOJ rate gap widen? Did trade deficit worsen? Did global risk-off happen?
- Explain the deviation: If none of those changed but yen still weakened, what else is at play? Portfolio flows? Intervention expectations? Structural shifts?
Finance is Getting More Complicated (and Will Continue To)
The financial system is not static. Every decade brings new instruments, participants, and relationships that make markets more interconnected and complex. The trend is clear: finance will keep getting more complex. New products, new technologies, new cross-market linkages.
In this environment, you can either chase each new development as it arrives—constantly playing catch-up with fragmented knowledge—or master the core principles so you can derive how new products work from first principles. Deep fundamental knowledge lets you adapt. New instruments don't confuse you because you understand the underlying economics.