The Bank of Japan truly ends the era of negative interest rates and initiates a rate-hiking cycle, and its impact could far surpass that of the Federal Reserve. This is not because the Japanese economy is stronger, but because the yen plays the role of the lowest-cost "funding resource" in the global financial system.

**The Underlying Logic of Arbitrage Trading**

Arbitrage trading (Carry Trade), in simple terms, is borrowing at zero cost to invest in high-yield assets. Over the past few decades, Japanese interest rates have remained near zero or even negative, making it the preferred financing tool for global capital.

How widespread is this strategy? Buffett's company has issued yen bonds multiple times, borrowing yen at nearly 0% interest, then converting into USD, and investing in US Treasuries or high-quality stocks like Apple—easily earning the interest spread. This is not secret manipulation but a publicly known capital arbitrage strategy.

Hedge funds and institutional investors follow suit: borrowing cheap yen, flooding into US stocks, Australian bonds, and even crypto assets and other high-yield fields. Arbitrage positions worth trillions of dollars have accumulated this way.

**Yen Rate Hike, a Complete Rewrite of the Game Rules**

Once the Bank of Japan truly starts raising interest rates, the situation will immediately reverse.

First is the sharp increase in funding costs. Borrowing yen is no longer zero-cost, and existing arbitrage positions will instantly become unprofitable, even start to incur losses. Institutional investors have no choice—they must massively unwind positions to cut losses.

Next comes a capital flight. US stocks are hammered, Australian bonds are sold off, crypto assets face mass liquidation. Everyone is doing the same thing at the same time: selling assets, converting to yen, and repaying debts. This panic-driven unwinding will pose a lethal blow to global risk assets.

Even more frightening is the drying up of liquidity. Yen rapidly flows back into Japan from the global markets, effectively draining one of the most critical liquidity sources. The downturn in other markets will accelerate and intensify as a result.

**This is not a normal correction but a foundation shaking**

The Fed cutting rates is "liquidity injection," which may boost asset prices. But a yen rate hike is "liquidity withdrawal," which directly destroys the foundation of high-valued global assets—the disappearance of cheap capital.

The implications for the crypto market are clear:

The volatility linked to US stocks will sharply amplify. The market’s free cash flow might temporarily dry up, shifting from incremental to stock-to-stock, or even shrinking, game. The real test is not when the Fed cuts rates but how strong the "liquidity withdrawal" from the yen will be.