The Bank of Japan is expected to maintain its hawkish stance next week, with no signs of easing the pace of rate hikes. The market has already priced in a potential rate increase to 0.75% by December 19 — a level unseen in Japan for the past thirty years. But this may just be the beginning.

The most sobering data point is in front of us: real interest rates remain firmly in negative territory, and inflation has been above 2% for three consecutive years. The Bank of Japan holds these chips and has reason to continue "small steps" to raise interest rates. Even as they approach the so-called neutral rate range (1.0%-2.5%), they have no intention of stepping on the brakes, with a clear goal — to break the long-standing dependence on easing.

The issue here is: policy is starting to "consume data." Loans, financing, consumption… each piece of data could serve as a trigger for the next rate hike. Uncertainty is rising, and precisely estimating the neutral rate has become almost a pseudo-issue. Gradual rate hikes are now the most realistic approach.

For currency holders, the impact is significant. The yen arbitrage space is shrinking, and global liquidity is tightening. If subsequent economic data remains strong, the reallocation of capital will pressure risk assets like Bitcoin and Ethereum. As arbitrage capital withdraws, the scene could become even more intense than expected.

Practical advice boils down to a few points:

First, avoid excessive leverage — nobody can predict when a "black swan" will fly by. Second, keep a close eye on the yen's movements and the USD/JPY interest rate differential, as these are the key indicators. Third, if you must trade, look for assets with solid fundamentals during periods of volatility, buy on dips, but be patient.

The Bank of Japan is currently walking a tightrope — whether it continues tightening or makes moderate compromises, the future remains uncertain.