💥 1 Trillion Dollar Crisis: Japan's BOJ Rate Hike Threatens Global Markets

On December 19, the Bank of Japan is expected to raise rates by 0.25% (25 bps).

The rate hike seems small, but it could have a huge impact on finance worldwide.

Why is this important?

1️⃣ Risk of Yen Carry Trade Ending

For years, investors have borrowed cheap Japanese yen (JPY) and invested that money in higher-yielding U.S. assets, such as US Treasuries.

But when Japan raises rates, borrowing in yen will become expensive.

This means that this old profitable method will no longer yield profits.

2️⃣ The Great Unwind — Major Reversal

When this trade is no longer profitable,

investors will sell their U.S. assets to repay the borrowed yen.

3️⃣ Pressure on U.S. Bonds (US Treasuries)

Japanese funds are among the largest foreign holders of U.S. debt.

If they start selling Treasuries:

U.S. Treasury prices will fall

Their yields will increase

This means:

✔️ The cost of borrowing for the U.S. government will rise

✔️ Mortgages will become more expensive for homebuyers

✔️ Financing will become more expensive for businesses

Bottom Line

Japan's move

Will tighten global liquidity

Create a fear/risk-off environment in the markets

Could bring significant volatility to stock and bond markets

As cheap Japanese capital is drying up.