Recently, an extremely rare phenomenon has emerged in global markets: while the US Federal Reserve is preparing to ease and cut rates, the Bank of Japan has suddenly made a historic move to raise rates and tighten policy. This isn’t just an ordinary policy divergence—the entire underlying structure of global liquidity is undergoing a dramatic reconstruction.

Let’s talk about the “arbitrage game” that’s lasted for twenty years. In the past, institutions frantically borrowed nearly zero-cost yen and poured it into high-yield assets like US stocks and cryptocurrencies. Now, that playbook is completely overhauled: Japan’s rate hike drives up borrowing costs, and US rate cuts compress arbitrage margins. The result is a large-scale wave of liquidations that’s already begun. Bitcoin has dropped over 20% this month, tech stocks are bleeding across the board, and this is just the first wave of impact.

What’s even more critical is the chain reaction. Capital is now fleeing in both directions: some is flowing back to Japan to repay debt, while another part is rushing to US dollars for safety. The Thai baht and Vietnamese dong have plunged, and Vietnam’s stock market tumbled more than 5% in a single week. Southeast Asian economies with heavy yen-denominated debt are under tremendous pressure—yen appreciation means their debt loads balloon instantly, and the risk of default is no joke.

The market is now showing a state of fragmentation. Japanese government bond yields have soared to their highest levels since the 2008 financial crisis, dragging down global government bonds as well. On the Japanese stock market, exporters are obviously under pressure as yen appreciation eats into profits. US stocks are supported by rate cut expectations, but the selling pressure from arbitrage unwinding is also strong—a fierce tug-of-war between bulls and bears is underway.

There’s also a hidden time bomb: Japan’s government debt has reached 260% of GDP. After the rate hike, interest burdens will rise sharply—could this crush Japan’s finances? Many are asking whether this is a precursor to the next “Lehman moment.”

Looking ahead, high volatility may become the new normal. Central banks are now preoccupied with their own affairs, but global markets are interconnected. This round of reverse operations may trigger a debt crisis in a highly leveraged emerging market first, or a liquidity crisis in Japanese government bonds that ripples globally, with the wave of arbitrage unwinding continuing to squeeze risk assets.

In this environment, a few suggestions: First, de-leverage—highly leveraged positions can be easily wiped out in volatile swings. Second, maintain liquidity—keep some cash on hand to seize opportunities from panic selloffs. Third, consider hedging allocations, such as a combination of USD stablecoins and tokenized government bonds for risk mitigation. Fourth, pay close attention to on-chain data—stablecoin flows and exchange net inflows can reveal real capital movements.

In summary, the impact of this round of policy moves is still fermenting, and market reactions could far exceed expectations.