What major events have recently happened in Japan? In one sentence: The central bank finally pressed the rate hike button, and the market is starting to reprice global assets.

Let's look at some numbers first: Japan's 10-year government bond yield soared directly to 2.18%, the highest in 25 years. Going further back in history, the last time we saw this level was in 1997. You might ask, what's the big deal? But for Japanese investors accustomed to near-zero interest rates, this is indeed a watershed moment.

The central bank has already taken action. The Bank of Japan announced that by the end of 2025, the benchmark interest rate will be raised to 0.75%, officially marking the end of the decades-long era of extreme easing. Moreover, based on market bets, to cope with domestic inflation pressures and yen appreciation, the central bank is very likely to continue raising interest rates.

The key question is: what does this mean for global assets? Imagine if large Japanese institutions start to massively reduce their holdings of U.S. Treasuries, then U.S. Treasury yields would be pushed higher, and the valuation of U.S. stocks would face increased pressure. This is akin to a passive rate hike happening globally, with global liquidity quietly being drained.

There's another interesting dimension. When Japan's domestic risk-free rate can stabilize above 2%, domestic institutional investors in Japan start recalculating: if the cost of hedging exchange rates is included, buying Japanese government bonds might be more valuable and safer than buying U.S. Treasuries. This reversal in yield attractiveness could change the flow of global capital.