Was that drop in the middle of the night completely inexplicable? Stop fixating on the Fed’s rate cuts—the real trigger is on the other side of the Pacific: the Bank of Japan is actually getting ready to make a move this time.

To put it simply: the global liquidity tap is about to be tightened.

How has the game been played for the past decade or so? Japan kept interest rates at rock bottom, institutions borrowed yen like crazy (costing almost nothing), swapped it for dollars, and went on a shopping spree—US Treasuries, tech stocks, crypto, you name it. This “yen carry trade” has been the invisible hand relentlessly pushing up asset prices across the board.

But now, the story is changing: Japan is about to hike rates. As borrowing costs rise, the rules of the game are upended. The leveraged players are starting to unwind in panic—first selling US Treasuries to convert back to yen, then pulling out fast.

All the strange market moves you’ve seen? They all connect:

**Why did the bond market blow up?**
Rate cut expectations are still there, but long-term yields are surging? Because the biggest buyers (Japanese funds) are fleeing! Once the selling wave hits, bond prices plunge and yields naturally spike. This has nothing to do with the Fed anymore—it’s pure liquidity drain.

**Why is the US stock market so split?**
The Dow and Nasdaq are barely hanging on, but the Russell 2000 small caps are getting crushed. The money’s being pulled out in stages—starting with the most liquid blue chips, while the small caps, most dependent on financing, are the first to get dumped. Risk appetite is collapsing at a visible pace.

**Why has Bitcoin been able to hold up?**
It’s the global amplifier of liquidity and a barometer of sentiment. It soared on easy money, and now that liquidity is tightening, international hot money will dump it first. Next week’s Asian session could be especially dangerous—you can’t predict the timing of these carry trade unwinds.

In short: the biggest risk in 2024 isn’t whether the Fed is dovish or hawkish, it’s that Japan—the “gray rhino”—has started to charge. The golden decade of cheap money is ebbing away.

When the tide goes out, you see who’s been swimming naked.
During the early stages of a liquidity reversal, all assets will get more volatile. Hold onto your cash, minimize unnecessary moves, and wait for the market to find its balance again.