Recently, the actions of the Bank of Japan have attracted attention. Economic recovery, a tight labor market pushing up corporate wage growth, combined with persistent inflation, have led the central bank to maintain a tightening stance. This directly impacts a key factor—the yen carry trade.

Speaking of this carry trade, the mechanism is actually not complicated. In the past, global institutions borrowed low-interest yen to invest in crypto assets, forming a sizable arbitrage fund pool. But now, Japan's benchmark interest rate has risen to 0.75%, the highest in nearly thirty years. The rising borrowing costs, coupled with expectations of yen appreciation, have forced institutions to close their positions. Crypto assets are often the first targets for liquidation.

History provides us with reference data. Looking back at the three previous times the Bank of Japan raised interest rates, Bitcoin experienced a 20%-30% retracement, with quite aggressive selling.

However, this time the market reaction has been somewhat mixed. On one hand, expectations of rate hikes had already been digested by the market, and after the news was announced, crypto assets actually stabilized, following the typical "buy the rumor, sell the fact" pattern. Why is that? The liquidity released by the Federal Reserve's rate cuts has, to some extent, offset the impact of capital flowing back to Japan.

But long-term risks should not be ignored. Rising wages support ongoing inflation, and the Bank of Japan's tightening cycle may continue, prolonging the pressure to unwind carry trades. Additionally, since crypto assets have long been closely linked with traditional finance, institutions often sell off in tandem when reducing their positions. Investors need to closely monitor policy guidance, as the lagging effects of liquidity contraction could trigger deeper adjustments in the future.