The Bank of Japan finally turns around. During Christmas, Governor Ueda Haruhiko's speech clearly signals a hawkish stance: the wage-price spiral has taken shape, inflation targets are within reach, the negative interest rate system must end, real interest rates are at unacceptably low levels, and the rate hike cycle will continue to advance.

This is not a tentative statement but a thorough policy showdown. The global arbitrage trading system supported by cheap yen for the past 30 years is facing a fundamental shock.

**The foundation of arbitrage trading is collapsing**

Long-term, Wall Street and global institutions have borrowed yen at zero or very low costs to invest in high-yield assets like U.S. Treasuries and U.S. stocks. Now, with rising borrowing costs for yen, this "profit from arbitrage" strategy's interest rate differential is shrinking. Market participants have already begun reassessing the viability of such positions.

**What will happen to global capital allocation**

To service the rising costs of yen-denominated debt, global capital may be forced to make phased adjustments. This means withdrawing funds from other assets and returning them to Japan becomes an inevitable choice. Whether it's U.S. Treasuries, U.S. stocks, or other risk assets, they may face selling pressure from arbitrage unwinding. The cryptocurrency market, as a high-risk asset class, is also within the scope of this rebalancing.

**It's not just interest rates changing**

The market focus is shifting: from "should we raise interest rates" to "how fast and how high to raise them." Every policy statement from the Bank of Japan and economic data interpretation could trigger cross-market volatility. This marks the emergence of a new market environment—uncertainty and volatility will become the new normal.

The era of 30 years of cheap capital may truly be coming to an end. The key question is: which market will be hit first by this capital reflow? U.S. stocks, U.S. bonds, or other sectors including digital assets? The answer will determine the next phase of the market landscape.