The Bank of Japan has initiated a tightening cycle, and the shockwaves across the global financial markets have just begun. The most immediate result is rising financing costs, with a chain reaction spreading to various economies.

Let's first look at the corporate side. In the past low-interest-rate era, corporate financing was like drinking free lunch—costs were unbelievably low. Many companies relied on cheap debt to expand wildly, engage in frequent mergers and acquisitions, and invest heavily. Now that Japan has raised interest rates, global rates are also climbing, and the cost for companies to borrow money is skyrocketing. Especially those already carrying high leverage, facing sudden increased pressure. Debt burdens are heavier, repayment pressures grow, and companies with weak profitability may even fall into liquidity crises, with default risks rising accordingly. Companies will become more cautious in their investments, which will also weaken the contribution to global economic growth.

Emerging markets face an even trickier situation. These markets have long attracted international capital with high yields, much of which comes from Japan. Now, the situation has reversed—domestic interest rates in Japan are rising, and international capital is starting to flow back home. Emerging markets are under pressure from capital outflows, and to attract and retain capital, these countries are forced to follow suit and raise interest rates. The result is soaring local financing costs, weakening economic growth momentum. Worse still, capital outflows can depress local currency exchange rates, increase import prices, intensify inflationary pressures, and ultimately create a vicious cycle—capital fleeing, currency depreciating, prices soaring, and economic recession.

These changes have a significant impact on the crypto market. Tighter global liquidity means risk assets are under pressure, but at the same time, it creates new demands for capital seeking hedges and diversified allocations.