The Bank of Japan voted yesterday morning to raise interest rates, with the policy rate jumping from 0.5% to 0.75%, the highest level since 1995. Although the numerical change seems small, it actually signals a warning bell for the global financial landscape.

For our crypto circle, this signal is especially important. The golden era of financing with yen to freely obtain liquidity may truly be coming to an end.

**How Yen Arbitrage Works**

Over the past few decades, major international capital has played a seemingly simple but highly profitable game. Borrowing yen at near-zero costs in Japan, converting it into USD, and then investing these USD in U.S. bonds, U.S. stocks, or high-yield assets like Bitcoin. It sounds brainless, but this is how profits are made—as long as the interest rate differential is large enough.

Japan’s long-standing ultra-low interest rate environment continuously supplies cheap funds. The core reason this model has lasted so long is right here.

According to data from various institutions, the total scale of yen arbitrage trading is conservatively estimated between 1 trillion and 5 trillion. More aggressive estimates even reach the level of 20 trillion. Looking specifically at the crypto sector, there are about 3.4 trillion in arbitrage trades directly linked to the yen. Imagine how huge this pool is.

**The Impact of 0.75%**

Rising from 0.5% to 0.75% may seem like just a 0.25 percentage point increase. But don’t underestimate this move. When your financing costs jump from near zero, the profit margin for arbitrage trading is immediately squeezed. That previously "always-running" money-making machine is starting to wobble.

This is not just Japan’s issue. The yen is a major source of global liquidity, and its changes can create a butterfly effect, stirring waves across the global financial markets. U.S. bond yields may be re-priced, capital flows in emerging markets could adjust, and even the liquidity landscape in crypto markets will shift accordingly.

In the coming days, strategies that rely on arbitrage spreads will need to be recalculated.