Japan might accelerate rate hikes—how will it impact global risk assets? Japan’s pace of rate hikes could speed up. Today, Krishna Srinivasan, Director of the IMF Asia-Pacific Department, stated that the Bank of Japan’s move toward monetary policy normalization is the right direction. If inflation exceeds expectations, faster rate hikes may be necessary to prevent people from forming expectations of persistently higher price increases. In September, the Bank of Japan already raised its policy rate to 1.25%, a 31-year high. Many analysts predict another hike before the end of the year. Japan’s long-standing low interest rates have made the yen a key funding currency in international markets. Some investors borrow cheap yen, convert it into dollars or other currencies, and then buy bonds, stocks, or other assets to seek returns higher than their borrowing costs. If Japan continues to raise rates, the cost of new borrowing and refinancing maturing loans could increase, leaving less profit after deducting interest from the same asset returns. Additionally, if the yen appreciates significantly, investors who haven’t adequately hedged against exchange rate risks will need more dollars to buy back yen for debt repayment. Even if the prices of their held assets don’t drop, their returns after converting back to yen could shrink—or even turn into losses. If asset prices fall or margin calls occur, some funds may sell assets to buy yen and close positions. Concentrated yen buying could further push up the exchange rate, putting similar positions under pressure to reduce leverage. In this way, Japan’s rate hikes could ripple through global risk markets. Stock positions directly financed with yen might be adjusted first. If multiple markets experience simultaneous deleveraging, some investors might sell other liquid assets to replenish cash and margin requirements, potentially impacting U.S. stocks and $BTC. The more sudden the shift in rate hike expectations and the faster the yen rises, the less time these funds will have to adjust. One @Gate—trade across more markets.