The Bank of Japan raises interest rates by 25bp. On the surface, it appears to be a mild adjustment in line with expectations, but behind this number lies a powerful force capable of stirring global capital flows.

The key is not the magnitude of the rate hike itself, but what the central bank says next. If this is just an isolated adjustment, the yen might spike and then retreat. What truly determines the market direction is whether the BOJ hints at further rate hikes in 2026—each word can ignite or extinguish investor expectations.

**This is the true eye of the storm**

Over the past decade, more than one trillion dollars of capital borrowed nearly at zero cost in yen and invested in U.S. Treasuries, U.S. stocks, emerging markets, and even cryptocurrencies. Now, with rising interest rates, this massive capital must reverse course: sell global assets and exchange back into yen to repay loans.

A chain reaction is unfolding. U.S. stocks and crypto markets may face a "passive sell-off" adjustment rather than a rational decline based on fundamentals. Emerging markets are under capital outflow pressure. The global volatility index is rapidly climbing. Risk assets like BTC and ETH are among the first to be affected.

Within Japan, the situation is also a tale of two extremes. Rising government bond yields mean increased debt servicing costs for the government. Corporations and mortgage holders face higher financing costs. The Japanese stock market shows internal divergence—financial stocks benefit from rising rates, but export-oriented companies are suppressed by yen appreciation.

**The most concerning shift is in market psychology**

A 25bp hike itself may not be deadly; the danger lies in the market starting to believe this is not an isolated adjustment but the beginning of a sustained rate hike cycle. Once this expectation takes hold, it will reinforce itself.

Key points to watch: the yen’s reaction within one hour after the press conference will set the short-term sentiment; whether global risk assets stabilize within 48 hours; and after a week, whether the carry trade unwind continues. These are critical windows for judging the subsequent trend.