Why does Japan's interest rate hike trigger fluctuations in the global market? - The "deleveraging" in the real world is happening.

Even a novice can understand in one article: The world is undergoing a liquidity tightening driven by Japan, which is not a problem unique to cryptocurrencies, but rather a structural shift in the flow of global funds.

In the past 24 hours, the cryptocurrency market has significantly retraced:
✅ $BTC dropped from $91,000 to below $86,000
✅Over $600 million in liquidations in 24 hours
✅The total market value of cryptocurrencies evaporated by 144 billion dollars
This is not an internal issue of cryptocurrency, but rather a forced contraction of global liquidity. The real source comes from Japan.

1. What happened in Japan?

The Governor of the Bank of Japan, Kazuo Ueda, has signaled a hawkish stance, with market expectations for a rate hike on December 19 rising to 76%.

A series of intense reactions followed:
✅Japan's 10-year government bond yield soared to 1.84% (the highest since 2008)
✅Japan's 2-year yield hits a high not seen since 2008
✅The Japanese yen is rapidly appreciating.
✅One of the largest arbitrage trades in the world - Yen Carry Trade is starting to accelerate liquidation.
The impact of this matter is much deeper than most people imagine.

2. Why will Japan's interest rate hike drag the world down?

There is only one reason:
Japan's long-term zero interest rates serve as a "cheap funding pool" for global risk assets.

For decades, Japan's interest rates have been close to 0, which means borrowing yen costs almost nothing. As a result, global institutions have generally adopted the same strategy:

Borrow Japanese yen → Convert to US dollars → Invest in risk assets (US stocks, bonds, $BTC , etc.).

This is the yen arbitrage trading.
As Japan maintains a zero interest rate for a long time, this game can be played for many years.
But now, Japan suddenly has expectations of interest rate hikes.

3. What does a rate hike in Japan mean?

In one sentence:
Cheap money has become expensive, and all positions borrowing yen need to deleverage.
As interest rates rise from 0, arbitrage costs increase, and strategies that were originally profitable can turn into losses.

As a result, global capital began to be forced to do three things:

✅Sell off the risky assets in hand
✅Exchange back to USD
✅Exchange the US dollars for Japanese yen to repay the loan.

This is deleveraging, and it will trigger a chain reaction:

✅Risk assets are falling in sync.
✅Liquidity quickly shrinks
✅Volatility Soars
✅The yen further appreciates due to capital inflows.
✅The appreciation of the yen has in turn forced more positions to be closed.
Forming an approximate "death spiral".

Four, why did the cryptocurrency drop more sharply than other assets this time?

Because cryptocurrencies are the most sensitive type of global risk assets:
✅High leverage
✅Liquidity is relatively concentrated
✅ A large amount of institutional funds is related to arbitrage.

As the world begins to deleverage, the crypto market will be one of the first assets to be dumped.
$BTC dropped from 91k to 86k, with over 600 million dollars liquidated, which is a typical result of forced liquidation of funds.

5. This is not a problem of the crypto market, but a global issue.

The essence of this fluctuation is not "crypto itself being bearish," but rather:
Japan is causing global leverage to begin to shrink.

Japan's interest rate hike → Yen appreciation
Yen appreciation → Arbitrage closing
Liquidation → Global risk asset sell-off
Sell-off → Decrease in liquidity
Decreased liquidity → Market weakness synchronously
This logic can be completely compared to the liquidation mechanisms in DeFi, just scaled up to the real world.

6. How do we view the future?

If Japan really raises interest rates on December 19:

✅Global risk assets remain under pressure.
✅The volatility in the crypto market will not end immediately.
✅The yen may continue to strengthen
✅ Funds will prefer safe-haven assets (e.g., gold)

But from a longer-term perspective, deleveraging will squeeze out bubbles and create space for the next real bull market.

The market will not stop fluctuating because you understand it or not.
But understanding these mechanisms allows you to view the market from a higher dimension.

If this content has helped you clarify today's crash logic:
Please give a thumbs up, follow, and leave your opinion in the comments.
Every interaction you have gives me the motivation to continue producing more hardcore and easier-to-understand content!