Don't just focus on the Federal Reserve! The Bank of Japan is taking action this week, which may tear apart the global asset pricing script!

This time, the Bank of Japan seems determined to act, estimating that interest rates will rise from 0.5% to 0.75%. If this happens, it will be the first time in thirty years, and it won't be a small matter.

In my opinion, the key isn't whether they raise rates or not, but what will happen after the increase, that is the real trouble. Let me break it down for you.

First, the yen will definitely appreciate. The reasoning is simple: with higher interest rates, more people will be willing to keep their money in Japan or exchange it for yen. But this will trouble the Japanese stock market, which has already been a bit “weak” lately; I'm afraid if the funds flee, it will look even worse.

What is most concerning is the global market. Over the past few years, many people around the world have borrowed cheap yen to invest in U.S. stocks and buy other assets, which is called “carry trade.” Now that Japanese interest rates are rising, this calculation is no longer favorable, and everyone might have to quickly sell assets and repay yen. This kind of global “drain” will hit U.S. stocks the hardest, especially those high-flying tech stocks with expensive valuations, I see trouble ahead.

As for Bitcoin and Ethereum, don’t think they can stay unaffected. A lot of money in this market is also supported by low-interest loans; if the global “tap” is tightened a bit, the crypto world will also shiver, and volatility will definitely not be small.

Finally, all of this depends on one person—the Governor of the Bank of Japan, Kazuo Ueda. What he says after the meeting, whether he hints this is the end or that more increases are coming, will directly determine whether the market can take a breath or continue to feel anxious. Personally, I feel this might just be the beginning.

The market has somewhat prepared for this rate hike, but the fear is that it will trigger a series of chain reactions that no one can fully predict. In the coming days, global investors will have their eyes fixed on Tokyo.

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