The Bank of Japan has lifted its policy rate to a 31-year high, marking a decisive break from the ultra-loose regime that defined Japanese monetary policy for three decades. The move extends a tightening cycle that began in 2024, when the BoJ first stepped away from negative rates and yield curve control, and signals policymakers are increasingly confident that inflation and wage growth are durable enough to sustain higher borrowing costs.

The second-order setup centers on the unwinding of the yen carry trade — one of the most crowded structural positions in global macro — where investors borrowed cheaply in JPY to fund long positions in higher-yielding or higher-growth assets worldwide. A stronger yen and rising Japanese rates raise the cost of holding those positions, potentially triggering forced deleveraging across equities, EM currencies, and credit. Watch USD/JPY for direction; a break below recent support levels would be the key signal that carry unwind pressure is accelerating.