ME News, December 20 (UTC+8), China Merchants Bank released a research report stating that on December 19, the Bank of Japan raised interest rates by 25bp, increasing the policy rate to 0.75%. Although the Bank of Japan is likely to maintain a high degree of restraint in its pace of interest rate hikes, the reversal of yen liquidity and the Japanese bond market will continue to suppress global financial conditions. First, the yen carry trade may continue to reverse, leading to long-term pressure on global asset liquidity. As of the end of 2024, there are still about $9 trillion positions relying on low-interest yen for liquidity, and this part of liquidity may gradually shrink as the US-Japan interest rate spread narrows. Second, the risks associated with Japanese bonds may further escalate. In the short term, the government of Suga Yoshihide approved a supplementary budget equivalent to 2.8% of nominal GDP, and in the long term, Japan plans to increase its defense spending to 3% of nominal GDP and permanently abolish the consumption tax. The Japanese government's untimely fiscal expansion stance may raise greater market concerns, and medium to long-term Japanese bond yields may steepen and the curve may accelerate its steepening. (Jin Ten) (Source: ME)