The Japanese Central Bank, which has been crazily point shaving for more than a decade, has suddenly changed its approach.

The yen is transitioning from a "cash machine" in the eyes of global investors back to a real currency that requires interest payments. This change is quietly rewriting the rules of the game for international capital.

For a long time, Japan maintained a negative interest rate and an extremely loose monetary environment. Global institutional investors had long been accustomed to borrowing yen at zero cost or even negative cost, then turning around to invest in high-yield targets such as U.S. stocks, emerging market bonds, and crypto assets. But now the Bank of Japan has officially bid farewell to negative interest rates and has started a rate hike cycle—the golden era of cheap funds has come to an end.

**Why must Japan raise interest rates?**

First is inflation. The deflation nightmare that plagued Japan for decades has disappeared, replaced by a comprehensive rise in prices. The prices of imported goods have surged due to the depreciation of the yen, directly impacting the wallets of the public. The Central Bank must cool inflation expectations by raising interest rates.

Secondly, the labor market has undergone a structural change. The aging population combined with labor shortages is driving wages up, which gives the Central Bank the confidence to raise interest rates.

The most critical issue is that the continuous depreciation of the yen has shifted from an economic topic to a livelihood pain point. The public's dissatisfaction with the decline in currency purchasing power is growing, and the Central Bank must take action.

**What will happen in the global market?**

Arbitrage trading is the first to suffer. Those players who are accustomed to borrowing yen to buy high-yield assets will see their costs rise sharply. Funds may flow back to Japan on a large scale, causing tremors in global stock markets, bond markets, and emerging markets.

For Japan, the banking industry will benefit from the widening interest margin, but the pressure of government debt will also surge. As one of the countries with the highest debt-to-GDP ratios globally, soaring interest expenses will pose a severe test to fiscal sustainability.

**What should investors pay attention to?**

Three changes worth being vigilant about:

Stop just focusing on the Federal Reserve; the actions of the Bank of Japan can also stir up big waves.

The risk coefficient of high-leverage and high-valuation assets is rising, while targets with stable cash flow are more resistant to risks;

Exchange rate fluctuations may become hidden landmines, and exchange rate risk management needs to be prioritized.

For high-risk assets like cryptocurrencies and tech growth stocks in the US, the interest rate hike in yen signifies that the "cheap money" dividend is fading. Investors should focus more on the fundamentals of the projects and engage less in leveraged games. When liquidity recedes, only then will we know who is swimming naked.