The Bank of Japan raised its policy rate to a multi-decade high, marking a significant step in its exit from the ultra-loose monetary policy that defined Japanese finance for nearly three decades. The hike, the latest in a cycle that began in 2024, signals the BOJ's growing conviction that inflation and wage growth in Japan are durable enough to sustain higher borrowing costs — a structural shift with global implications.

The key second-order effect is the continued unwind of yen carry trades, where investors borrow cheaply in yen to fund positions in higher-yielding assets globally; a stronger yen and rising Japanese yields are a headwind for that structure. Watchers should track USD/JPY for a sustained break lower, JGB yields relative to US Treasuries, and any stress signals in emerging-market or equity volatility that historically accompany sharp carry unwinds.