Japan's rate hikes often evoke memories of historical shadows— the tech bubble of 2000, the global financial crisis of 2007, and this year's July flash crash with a 12% plunge. So when the Bank of Japan raised interest rates to 0.75% (a 30-year high) on December 19, many were expecting a fireworks show. But what happened? The Japanese stock market actually rose by 1%, and the market didn't crash. The underlying logic behind this is worth a careful analysis.

The key difference lies in expectation management. Historically, Japan's rate hikes often caught the market off guard, forcing the unwinding of $20 trillion in carry trades, leading to a sharp decline in risk assets. But this time was different— the central bank signaled a full month in advance, giving the market ample time to digest the news. Coupled with current inflation stable around 3% and rising corporate wages, rate hikes are now seen as a normal trend normalization rather than an emergency brake.

However, there's an important detail: the Bank of Japan hasn't indicated that rate hikes are over. Economists generally believe the neutral interest rate range is between 1% and 2.5%, implying room for further increases. The trend of large-scale unwinding of carry trades hasn't changed either.

The upcoming market is likely to be volatile. The yen is expected to strengthen, but volatility in risk assets like the US dollar and Bitcoin will significantly increase— the higher the borrowing costs, the more funds tend to flow from virtual assets to tangible assets. The direct impact on A-shares and Hong Kong stocks will be smaller, but the attitude of northbound funds will become more cautious, and trading may become more turbulent.

For ordinary investors, the strategy should be: avoid chasing high-valuation stocks, increase defensive allocations such as bank stocks and high-dividend assets. Cryptocurrency positions should be moderate— don't be too aggressive. Steadiness is always the best choice.