The Bank of Japan Governor Kazuo Ueda released a clear signal before and after Christmas: the rate hike cycle has officially begun. He stated that wage growth and rising prices have formed a positive feedback loop, and the 2% inflation target is steadily progressing. As long as economic data remains within expectations, the central bank will continue to adjust its monetary policy direction.

What is the true meaning behind these words? The era of cheap yen is coming to an end.

For many years, global capital has been playing a simple yet highly profitable game — borrowing yen at extremely low interest rates and then investing in high-yield assets like US stocks or BTC. This yen arbitrage model has enriched many institutions and retail investors. However, as the Bank of Japan continues to raise interest rates, the yen’s appreciation trend is unstoppable, and exchange rate pressure will intensify. Once the yen rapidly strengthens, the holding costs of these high-risk positions will instantly rise, and a wave of selling is likely unavoidable.

On a broader scale, Japanese capital may start flowing back home, and global liquidity could tighten. In the first few months of 2026, financial markets may experience a period of intense volatility. This is something all investors involved in cross-currency arbitrage and holding US stocks or crypto assets should prepare for in advance.