The Bank of Japan made a historic decision this week, officially abandoning nearly thirty years of zero interest rate policy. This is the first rate hike since 1995, with the rate expected to rise to 0.75%, and the market assigns a probability as high as 90%. The subsequent chain reaction is spreading across global capital markets.

The most immediate change is in the exchange rate. Japanese government bond yields have soared to their highest levels since 2007, and the USD/JPY exchange rate is approaching a critical level. As the largest overseas holder of U.S. Treasuries, the Bank of Japan holds $1.189 trillion in U.S. debt. And that $534 billion ETF asset list, the Bank of Japan plans to slowly digest over more than a century.

What does this mean? The cheap yen that once supported global capital market liquidity is about to exit the stage. Over the past thirty years, investors have routinely arbitraged by borrowing low-cost yen—they use nearly zero-cost yen to buy U.S. stocks, U.S. bonds, and even high-volatility assets like Bitcoin. This model has been in play for so long, and the returns have been decent.

But historical data offers a warning. Every time the Bank of Japan acts, the crypto market reacts strongly. After the rate hike in March 2024, Bitcoin fell 23%. By July, the decline expanded to 26%. In January of this year, it directly dropped 31%. This is not a coincidence but a result of large-scale arbitrage funds adjusting their positions simultaneously.

When margin calls start to trigger forced liquidations, the market could face a chain reaction. But during this process, we also see decentralized stablecoins like USDD quietly expanding their territory. In the face of traditional liquidity shortages, new stability solutions are being reevaluated by the market.