Recently, the market has been buzzing again about the topic of “Japanese interest rates taking off,” but to be honest, just looking at the rate hike itself, its impact isn’t as fierce as people imagine.

Where’s the real issue?

The yen—the world’s cheapest funding pipeline—is starting to see its costs rise.

For the past decade or so, this pipeline has supported many: borrowing ultra-low interest yen, flipping it to buy US Treasuries, US stocks, corporate bonds, even BTC and ETH—profiting from the interest rate spread, making easy money.

But now the rules of the game are changing. Japan’s 10-year government bond yields have indeed hit new highs, which looks scary. But what’s even more critical: financing costs are rising, but asset returns aren’t following suit; the spread is being squeezed, and leverage is becoming less attractive.

New money doesn’t dare to rush in, and those rolling over old leverage have to think twice: “If rates go up again, won’t I just be working for nothing?”

Right now, we’re only at the first stage—the market is realizing the spread is narrowing, but the pressure hasn’t fully erupted yet.

Going forward, watch these three points:

1) Will Japan’s 10-year yield keep pushing to 1.3%-1.4%?
2) Will the Fed provide a clear rate-cut path in December?
3) Can global front-end funding costs come down together?

If these three don’t align, the arbitrage chain will break sooner or later.

This current rebound is mostly due to the Fed pausing QT and renewed rate-cut expectations, which is more about sentiment repair than any resolution of the “Japanese rate issue.” Rising yen rates won’t crash the market overnight, but they will gradually erode its resilience.

For example: it used to be like someone letting you borrow money at zero cost to earn 4% on US Treasuries. Now, suddenly, you’re paying 1% interest. Still tolerable. But if rates rise to 3%-4%, you definitely won’t keep doing it—selling your assets to pay back debt becomes the normal response.

The Fed has indeed released some liquidity, but the SLR issue isn’t solved, and the risk of recession hasn’t been fully eliminated. It’s still too early to say the trend has totally reversed.

However, institutions are already quietly building positions, which means the window has indeed arrived. But at this stage, it’s not about rushing in blindly—it’s about seeing the opportunity while knowing the risks are lurking right beside you.