The Bank of Japan has truly gone all out this time. The latest meeting minutes send a strong signal: continuing rate hikes after December is now a foregone conclusion. The current interest rate level of 0.75% has reached a thirty-year high, but central bank officials remain hawkish—fully aware that this is just the beginning.

Why has the BOJ, which has been passive for thirty years, suddenly shifted? There are four solid reasons driving this change. First, inflation has been consistently exceeding the 2% target for nearly four years, while real interest rates remain in negative territory, silently eroding the purchasing power of the yen. Second, the yen has been weak for a long time, making it difficult to ease price pressures; some officials within the central bank even advocate for accelerating the pace of rate hikes. The third key factor is that the era of negative interest rates has officially ended—capital relying on Japanese low-rate arbitrage is starting to withdraw, causing turbulence in the Japanese stock market, bond market, and even the foreign exchange market. Fourth, the central bank’s policy roadmap is now clearly outlined: current interest rates are still far from the neutral level, and the rate hike cycle is only halfway through.

The spillover effects of these policy signals are already evident. Yen volatility has increased, depreciation expectations loom over the market, and safe-haven assets like gold and Bitcoin tend to perform better amid market sentiment swings. Previously, only the Federal Reserve was tightening liquidity, but now the BOJ has joined in, which will inevitably continue to pressure global liquidity conditions.

Deeper impacts extend beyond Japan itself. If the BOJ continues to raise rates, the over one-trillion-dollar yen arbitrage trades could face collapse, putting chain reactions on the US dollar, US Treasuries, and emerging market assets. Some investors have already sensed the risk signals, but others are looking for new opportunities amid this wave of volatility. Every turn in the market often harbors the next wave of opportunities and risks.