The Fed cuts interest rates, the Bank of Japan raises rates—this seemingly routine policy combination may actually hide a massive capital shift.

The most direct impact? Where will the money flow. For years, the ultra-low interest rate environment in Japan has given rise to carry trades, which are now facing collective unwinding. Imagine this: investors who previously borrowed yen to buy US dollar assets for interest rate differentials now find that the US-Japan interest rate gap is narrowing, or even possibly inverting. What will they do? Sell US dollar assets and convert back to yen to repay loans. This is not a small-scale operation, but a potential trend change that could trigger large-scale capital flows back to Japan.

The yen itself is even more interesting. The inflow of US dollars into Japan will not appreciate the dollar—instead, because this money ultimately needs to be converted into yen, demand rises, and the yen naturally strengthens. That’s where the market’s expectation for a lower USD/JPY comes from.

But what really deserves vigilance is the potential wealth-harvesting scenario that could follow.

Imagine a situation: funds have just flowed into Japan, and the Fed suddenly reverses course and raises rates, forcing Japan to cut rates. The interest rate gap widens again. What will the funds that just entered do? Frenziedly exchange for US dollars and flee. The yen plummets, asset prices collapse, and import costs soar—Japan’s debt at 2.3 times GDP would make the country struggle between easing debt burdens via rate cuts and coping with currency depreciation. Wealth outflows plus inflation pressure—that’s the classic logic of wealth harvesting.

Of course, this kind of extreme case may not happen.

Would the Bank of Japan cut rates right after raising them? That move would be too wild, and market confidence would collapse. The Fed also has its own problems—weak economy, fiscal deficits, and limited room to raise rates. More importantly, the US and Japan are close allies, with deep policy coordination mechanisms, so it's unlikely they’d play such a self-destructive game.

But then again, financial markets are like this: a slight policy shift can trigger sensitive capital reactions. Every adjustment of US and Japanese monetary policy is a game of interests and a transfer of wealth. As one of the most liquidity-sensitive sectors globally, the crypto market will also be impacted by these macro variables.

So, this is worth watching continuously. It's not that the worst-case scenario will definitely happen, but understanding the underlying logic of capital flows is key—where the money goes, that's where the risk lies.