China Merchants Bank released a research report stating:

On December 19, the Bank of Japan raised interest rates by 25 basis points, raising the policy interest rate to 0.75%. Although the Bank of Japan is highly likely to maintain a high degree of restraint in the pace of interest rate hikes, the reversal of yen liquidity and the Japanese bond market will still exert pressure on global financial conditions.

First, the yen carry trade may continue to reverse, creating long-term pressure on global asset liquidity. As of the end of 2024, there are still approximately $9 trillion positions using low-interest yen as a source of liquidity, and this portion of liquidity may gradually shrink as the US-Japan interest rate differential narrows.

Second, the risk of Japanese bonds may further escalate. In the short term, the government of Prime Minister Fumio Kishida approved a supplementary fiscal budget equivalent to 2.8% of nominal GDP. In the long term, Japan plans to increase defense spending to 3% of nominal GDP and permanently reduce the consumption tax. The Japanese government's stance on fiscal expansion may raise greater market concerns, leading to a steeper rise in medium- to long-term Japanese bond yields, accelerating the steepening of the curve.