Why did the Bank of Japan signal rate hikes early, but still cause market panic when implemented? The main reason is the unwinding of carry trades: Previously, a large amount of funds borrowed zero-interest/negative-rate yen to purchase U.S. Treasuries. However, with the BOJ continuing to raise rates and the U.S. entering a rate-cut cycle (currently at 3.25%), the arbitrage spread has significantly narrowed from 5.25%+. If this time rates are raised another 25BP to 0.75%, the spread will compress further, forcing traders to close positions due to insufficient profits, triggering a global market downturn. The BOJ monetary policy meeting on the 18th-19th will release relevant data. Polymarket predicts a high probability of a rate hike to 0.75%, which is the core reason behind the recent market decline!