Japan's interest rate hike may trigger a major shock to global markets, signaling the end of the era of low interest rates!

Everyone's been focused on the Federal Reserve's actions lately, but what could truly ignite global markets this month isn't Washington, but Tokyo. This country, dormant for over 20 years, is now releasing a signal that could potentially alter the trajectory of global capital flows. Over the past week, Japanese government bond yields have surged dramatically from short to long ends, with the 30-year rate hitting a record high, the 10-year rate breaking a 17-year high, and even the 20-year rate reaching multi-year highs. For a country that has long maintained stable interest rates, this is no longer just market volatility, but a complete interest rate restart. More importantly, Bank of Japan Governor Kazumi Nakada unusually hinted ahead of time, directly stating that a significant decision might be made at the December meeting. This sudden change has triggered high market tension, because last August, when Japan only slightly raised interest rates, global markets overreacted instantly, experiencing massive asset sell-offs. At that time, US stocks plummeted, Bitcoin was severely impacted, and global market capitalization evaporated by hundreds of billions of dollars. This time, it seems Japan is truly preparing to "walk," and may even start "running." How much impact will this have on global capital flows? For the past 30 years, the Japanese economy has been mired in deflation. However, since 2023, core CPI has been rising steadily, wage growth has exceeded 3%, and wage negotiations have reached their highest level since 1991. This means that Japan has finally achieved a positive cycle of inflation and wage increases. But just like the pressures brought by economic recovery, if Japan continues to maintain low interest rates, the yen will continue to depreciate significantly, severely impacting Japan's import costs and corporate profits. Therefore, Japan must now decide to raise interest rates to avoid damaging the hard-won economic structure. The Bank of Japan has released signals in advance to test the market's reaction. This strategy itself is a financial stress test; the market is no longer concerned about whether Japan will raise interest rates, but rather whether it will trigger a chain reaction of global capital flows. The rise of global risk assets over the past decade has been partly due to reliance on low-interest-rate funds from Japan. Now, if Japan raises interest rates, this capital chain will begin to reverse, and global assets will face the risk of repricing. Why would this trigger a stampede? Because in the past, global funds have borrowed heavily in yen for carry trade, using low-interest-rate funds to invest in higher-yield assets (such as US stocks, US bonds, and Bitcoin). If the yen appreciates, these funds will have to be withdrawn, potentially triggering a massive asset sell-off. When these trillions of dollars begin to withdraw rapidly, global financial market volatility will be even more severe. Last August's interest rate hike only slightly appreciated the yen, but it already triggered a sharp market reaction. This time, the market is worried that a Japanese interest rate hike could trigger an even larger capital outflow, particularly from US and tech stocks, as well as high-risk assets globally. Whenever Japan raises interest rates, global investment portfolios will face reassessment, especially those high-risk assets reliant on low-cost funding. As expectations of a Japanese interest rate hike become clearer, global markets are already preparing for a possible "unwinding wave." Markets are becoming increasingly nervous, and investors are beginning to withdraw from high-risk assets, particularly highly liquid assets such as tech stocks and Bitcoin. In the coming months, global market volatility will likely be dominated by the funding chain disruptions caused by the Japanese interest rate hike, far exceeding the impact of fundamentals. Therefore, what truly needs attention now is not whether the Federal Reserve raises interest rates, but the deeper implications behind the Japanese interest rate hike.