$BTC
Global markets are closely watching the Bank of Japan’s interest rate decision at its meeting on the 18th–19th, as a rate hike is widely expected. This has sparked growing concern that Japan could trigger market turbulence, with opinions divided on whether a full-blown “crash” is possible. Manish Kabra, a strategist at Société Générale, recently warned the Financial Times that “a hawkish move from the Bank of Japan is a bigger threat to the US equity market than the Federal Reserve or US domestic policy.”
So why is the world holding its breath over a decision by Japan’s central bank? The answer lies in the so-called yen carry trade. For years, investors have borrowed cheaply in Japan, where interest rates have remained near zero, and then invested those funds in higher-yielding assets around the world. This strategy has become deeply embedded in global markets.
A rate hike by the Bank of Japan threatens to unwind this trade. Higher Japanese interest rates could strengthen the yen and raise borrowing costs, forcing investors to close positions, repay yen loans, and sell risk assets elsewhere. This has raised fears of sudden market dislocations.