If the Bank of Japan raises interest rates, will the market crash?

Many people think that whether Japan raises interest rates doesn't matter, as the extent is not large anyway. But the real danger has never been about 'how much' but rather - Japan has finally started to move.

For more than twenty years, Japan has been the source of the lowest cost funds globally. A large amount of capital borrows in yen to invest in US stocks, cryptocurrencies, and various high-risk assets.

In short: many trends rely on Japan's low interest rates. Once interest rates rise, who will be the first to face problems? Not the Japanese economy, but leveraged funds. As soon as there is an expectation of yen appreciation, carry trade funds have to close positions by selling stocks, selling currencies, and reducing risks. This is not an emotional collapse; it is forced selling.

Why might it not just be a small correction? Because the current market position is not low, and leverage is not small either. When everyone assumes that 'money is always cheap', a change in rules usually results in a harsh adjustment.

Historically, many significant drops are not due to high interest rates, but because capital suddenly realizes it has taken the wrong direction.

What does this mean for the cryptocurrency market? In short: volatility will be amplified. The higher the leverage, the faster the demise; altcoins will fall first, mainstream coins will follow. After some time, there will be a sudden acceleration in the drop. It's not that the projects are failing; it's that money is exiting the market.

An interest rate hike by the Bank of Japan may not immediately trigger a global crash, but it is likely one of the switches for risk release.

Don’t bet on the market's mercy; managing your positions in advance is far more important than correctly judging the direction.