Recently, do you feel something is off? The shopping influencers on social media are crying about the yen appreciating, exporters are complaining about tough orders, and even the old man downstairs is asking why the US stocks are plunging so sharply.

All of this stems from a decision by the Bank of Japan — raising interest rates.

Many people hear "interest rate hike" and want to scroll away, thinking it's too obscure. But this time is different. I will explain it in the simplest terms so you can understand why this might be the biggest financial risk by the end of 2025.

In the financial world, Japan has a nickname: "The Global Arbitrage ATM." For thirty years, Japan's economy has been weak, and the central bank has kept interest rates extremely low, even turning negative at times. In other words, borrowing money in Japan is not only zero interest, but banks might even pay you to borrow.

Wall Street capitalists sniffed out the opportunity. They flooded into Japan, borrowing large amounts of yen. Zero-cost money, like a pie falling from the sky. Then they convert yen into dollars and euros to buy US Treasuries, Nvidia stocks, and high-yield global assets.

This is the famous yen arbitrage trade — borrowing at 0% cost, earning 5% returns, a perfect white-wash scheme.

The problem is, once the Bank of Japan raises interest rates, this arbitrage space will be squeezed. Trillions of dollars in arbitrage funds need to flow back, inevitably triggering sharp adjustments in global asset prices. As high-risk assets, the crypto market will be the first to be affected. That’s also the deep reason behind the recent increased volatility of cryptocurrencies like Bitcoin and Ethereum — not market sentiment, but a fundamental shift in global capital flows.

In simple terms, this interest rate hike by Japan may reshuffle the entire global asset allocation landscape.