Japan's interest rate hike may sound like distant news, but its impact on the US dollar and global asset allocation is actually quite profound. This time, we'll analyze the matter from two angles: the US dollar trend and the asset landscape.

Why is Japan's rate hike so critical? Basically, Japan has long served as a "water reservoir" for low-interest global funds. The entire financial world has been playing a mature arbitrage game—borrowing yen (with almost no interest) → converting to US dollars → buying US bonds, US stocks, or crypto assets, achieving dual returns. This logic has supported the market for many years, but now that Japan is beginning to raise rates, the rules of the game are about to change.

What specific changes might occur? There are three cascading effects:

First wave, arbitrage costs rise sharply. As yen borrowing costs increase, the near-free financing costs disappear, and the arbitrage space is squeezed beyond recognition.

Second wave, previously leveraged arbitrage funds unwind positions en masse. Investors start selling US assets to buy yen and repay debts, leading to intense selling pressure on USD assets.

Third wave, domestic Japanese capital also begins to withdraw. The attractiveness of overseas dollar assets diminishes, domestic yields become more appealing, and funds accelerate their return home.

Under these three pressures, the US dollar index is bound to come under stress. But it's important to clarify—currently, the Federal Reserve's interest rates are still significantly higher than Japan's, so the dollar won't plummet overnight. Instead, there will be medium- to long-term pressure, with fluctuations and oscillations along the way.

Looking at the impact on global markets, Japan's rate hike essentially amounts to a "liquidity drain" worldwide. Once the speed of this liquidity-generating machinery slows down, risk assets globally will feel the chill. Crypto markets, being part of this environment, will also be affected by these liquidity shifts. Risk appetite cools down, capital pulls back, and in this environment, all asset classes need to be re-priced. The key question is how long this process lasts and whether the Fed's own pace will adjust accordingly.