Recently, the market has been constantly discussing the impact of Japan's interest rate hike, but the real issue isn't how many basis points the rate increased—it's that the world's largest low-interest financing pipeline is starting to tighten.

Japan's 10-year government bond yield has indeed hit a new high, and the numbers look pretty dramatic. But where's the core problem? It's that the playbook everyone has gotten used to over the past decade is starting to show cracks: borrowing ultra-low-interest yen to buy US Treasuries, US stocks, credit bonds, or directly moving into BTC and ETH.

What's the key prerequisite for this arbitrage chain to run smoothly? A fat interest rate spread.

Now? The cost of borrowing is climbing, asset returns haven't kept up, and the leverage trade-off is starting to lose its appeal. New money is hesitant to pile in, and those rolling over old leverage have to think twice: "If rates keep going up, am I just spinning my wheels for nothing?"

We're still only at the warning stage—markets have realized the interest rate spread structure is changing, but the real pressure point hasn't erupted yet. Going forward, there are three things to watch:

First, will Japan's 10-year yield keep pushing up into the 1.3%-1.4% range?

Second, will the Fed's December FOMC meeting provide a clear rate-cut path?

Third, can global short-term financing costs fall in sync?

If these three don’t line up, the arbitrage chain is bound to break at some point.

The recent rebound is mostly a sentiment recovery driven by the Fed pausing QT and renewed rate-cut expectations, and isn’t really related to “Japan interest rate risks being resolved.” Yen rates rising won’t crash the market overnight, but like a chronic illness, will gradually erode risk tolerance.

To use an analogy: before, someone let you borrow money at zero cost to earn 4% on US Treasuries. Now, suddenly, you have to pay 1% interest. Tolerable. But what if rates rise to 3% or 4%? Any rational person would choose to sell assets to repay the loan, not keep toughing it out.

The Fed has injected a bit more liquidity, but with SLR exemptions not in place and recession risks not fully ruled out, it’s still too early to say the trend has fully reversed.

However, institutions are already quietly building positions, which means the window has indeed cracked open a little. But this phase isn’t suited for blind bets—it’s more like seeing opportunities while knowing the risks are lurking right beside you.