As we discussed last week, with the continued depreciation of the yen and the frequent coldness of Japan's long-term treasury bond tenders, the possibility of interest rate hikes in Japan is rapidly rising. Today, the latest speech by Bank of Japan Governor Kazuo Ueda, "By examining the domestic and international economic, inflation, and financial market conditions, weighing the pros and cons of raising policy interest rates, and making timely decisions," and "even if interest rates are raised, they will remain loose," undoubtedly marks the market's "final conclusion" - Japan's interest rate hike has shifted from a possibility to a matter of time. In the past decade, Japan has implemented yield curve control (YCC) for a long time, suppressing interest rates at extremely low levels and making the yen a "zero cost financing currency" for global capital. Once Japan starts raising interest rates, this "global ATM" will gradually shut down, and all high-risk assets that rely on cheap yen funds - whether it is the US stock market, AI sector, or Bitcoin - may immediately feel the pressure of "liquidity tightening". During the YCC period, the yield of 10-year Japanese bonds was mostly anchored around 0%, but recently it has risen to 1.8% -1.85%, reaching a new high since 2008. The yield on 30-year Japanese bonds once exceeded 3.3%, while the 2-year yield, which is more sensitive to monetary policy, also rose above 1%, reaching its highest level since 2008. At present, market expectations are highly consolidated: the probability of a rate hike at the December meeting is about 60%, and the probability of at least one rate hike by the end of January next year is close to 90%. If Japan really starts the process of raising interest rates, it may trigger the following three structural impacts: 1. Accelerated repatriation of local funds During the period of negative interest rates, domestic funds in Japan were forced to seek returns overseas, forming the world's largest overseas investment force. However, once the domestic short-term treasury bond can provide considerable risk-free returns, it is likely that this part of funds will be withdrawn from overseas (such as US bonds and US stocks) on a large scale and transferred to the allocation of local assets. 2. Arbitrage trading faces pressure to close positions The financing cost of Japanese yen has sharply increased - the 2-year interest rate is close to 1%, and there is a strong expectation of interest rate hikes, which will significantly compress the return risk ratio of carry trades that borrow Japanese yen and buy high-risk assets. Any unexpected rapid appreciation of the yen could force international funds to reduce their positions in US stocks, credit bonds, and even Bitcoin to repay yen debts. This is precisely the logic behind the 15% daily drop in Bitcoin caused by the rapid strengthening of the Japanese yen in August this year. But unlike last time, this time Japan's interest rate hike has a longer warm-up buffer period and QT is about to stop, but the overall liquidity situation in the market is worse. 3. Global long-term interest rate 'anchor' repricing Japanese treasury bond have always been an important base of the global interest rate system, and the yen is the main cheap financing currency. The rise in Japan's long-term interest rates means that the risk premium of global long-term interest rates will be systematically pushed up, and all assets that rely on discounted forward cash flows, especially technology stocks and cryptocurrency assets that tell the story of future growth, will face valuation restructuring. The interest rate hike in Japan is not only a domestic policy adjustment, but also a major event in the global asset pricing system. If the Federal Reserve dominates global short-term interest rates, then Japan profoundly influences the pricing logic of global long-term interest rates. Once the Japanese interest rate hike is implemented, it not only means that the yen rebounds, but also indicates that the "bottom logic of cheap financing" that has supported the global risk asset foam over the past years is being rewritten.