If the Bank of Japan really goes ahead with a rate hike, the market could be in for a major upheaval.

For the past decade or so, Japan has maintained ultra-low or even negative interest rates, and global investors have all been playing the same game: borrow yen at almost zero cost, convert it to US dollars, and pour it into US stocks, US bonds, emerging markets, or even crypto assets like SOL, XRP, and BNB to profit from the interest rate differential. This strategy has fattened countless hedge funds and arbitrage players.

But what happens if the script flips? A rate hike means the cost of borrowing yen would soar, instantly turning a sure-win arbitrage game into a hot potato. Funds would have no choice but to unwind their positions—selling stocks, dumping bonds, and crashing crypto to convert everything back to yen to repay debts. Even worse, the yen would appreciate as a result, further raising borrowing costs and forcing even more people into a stampede of sell-offs.

Once this chain reaction is triggered, it could set off a global deleveraging storm, on par with the asset liquidation wave during the Lehman Brothers collapse. Stocks, crypto, and bonds could all be hit simultaneously—no one would be spared.

Structural risks often lurk beneath seemingly calm waters; what’s truly lethal is never the ups and downs themselves, but the moment when leverage turns against you.