OdailyDepth author Qin Xiaofeng (@QinXiaofeng 888) reported, citing Nikkei, that the Bank of Japan is expected to raise its short-term policy rate from 0.75% to 1.0% at its June 15-16 monetary policy meeting. If delivered, that level would be the highest Japanese policy rate since 1995. Market pricing has moved sharply toward this outcome: on PolyMarket, the probability assigned to a 25bp rate increase has risen from 25% in early April to 98%.
The focus on this BOJ meeting extends far beyond Japan’s domestic rate level. For more than a decade, the yen has been a key funding currency for global carry trades because Japan maintained ultra-loose monetary policy. Investors borrowed yen at near-zero rates and deployed the proceeds into higher-yielding assets such as U.S. equities, technology shares, emerging markets and cryptocurrencies. A rate increase raises the cost of yen funding, while yen appreciation increases foreign-exchange losses for leveraged investors. That combination can force investors to sell overseas assets, buy back yen and repay loans, creating a feedback loop across global risk assets.
The policy path into the June meeting
Hawkish voices inside the BOJ have strengthened over the past two years. In March 2024, the central bank ended 17 years of negative rates by lifting the policy rate from -0.1% to a range of 0% to 0.1%, the first hike of the current cycle. In July 2024, the BOJ raised rates again by 15bp to 0.25% and announced a gradual balance-sheet reduction. In January and December 2025, it delivered separate 25bp hikes, bringing the policy rate to 0.75%. During the first three meetings of 2026, the BOJ kept rates unchanged.
After holding rates steady for six months, the BOJ is again moving toward tightening because of two main pressures described in the source article. The first is an energy shock and imported inflation. Middle East conflict during the first half of the year pushed oil prices into volatility, and Japan’s heavy dependence on imported energy translated that move into higher import costs. Japan’s corporate goods price index rose 6.3% year on year in May, the fastest pace since 2023. Within that figure, petroleum products rose 9.6% and utilities rose 8.5%. The BOJ expects core CPI in fiscal 2026 to rise to 2.5% to 3.0%, above its 2% target.
The second pressure comes from yen weakness. USD/JPY has been hovering around the 158-160 area, close to an historically extreme weak-yen zone. The depreciation directly reduces the purchasing power of Japanese companies when importing energy, raw materials and other commodities, lifting domestic price levels further. Japan’s Ministry of Finance has intervened in the foreign-exchange market several times, but the impact has been limited and difficult to sustain. That situation is pushing the BOJ toward tighter monetary policy at the June meeting in order to keep inflation expectations from running out of control.
How yen carry trades can reverse
BOJ Governor Kazuo Ueda shifted clearly toward an anti-inflation narrative in a June 3 speech, saying that if upside price risks exceed downside economic risks, the central bank must discuss the costs and benefits of rate hikes. Reuters, citing three people familiar with the matter, reported that unless the Middle East conflict escalates sharply, the BOJ will raise rates in June and use a slower pace of bond tapering as a way to preserve market stability. Bloomberg and ING have maintained similar views, with expectations that the BOJ will raise rates by a total of 50bp in 2026.
The carry-trade transmission channel is straightforward. Investors borrow low-cost yen, convert the funds into other currencies and buy higher-return assets. When the BOJ raises rates and the yen strengthens, the trade moves in reverse: yen appreciation increases FX losses; funding costs rise; investors are forced to deleverage; risk assets are sold at scale; falling asset prices trigger additional stop-loss orders; and liquidation pressure intensifies. The source article describes this as a positive-feedback loop that can magnify volatility in global risk assets.
The 2024 episode remains the clearest warning from recent history. On July 31, 2024, the BOJ raised rates by 15bp to 0.25% and announced gradual balance-sheet reduction. Combined with weak U.S. employment data, the move caused severe turmoil across global markets. South Korea’s KOSPI and KOSDAQ both plunged and triggered circuit breakers. Japan’s Nikkei 225 fell 12.4% in a single day and dropped more than 20% over one week, its worst performance since 1987. Global equities moved lower together; U.S. stocks and technology shares corrected; and the VIX fear index surged. Crypto was also hit hard, with Bitcoin and ETH falling more than 30% in one week and leveraged liquidations jumping sharply.
Morgan Stanley estimates that although many yen-funded positions have been unwound since 2024, roughly $500 billion in open yen-financing positions remain in the market. The bank warned that if the yen appreciates rapidly, chain liquidations could be triggered during thin-liquidity windows, with especially intense effects on highly leveraged assets. J.P. Morgan global market strategy head Dubravko Lakos-Bujas and FX strategist Meera Chandan also noted that policy divergence between the BOJ and the Federal Reserve would increase the instability of carry-trade unwinds and create pressure for a repricing of global risk assets.
AI equities face liquidity and cost pressure
The AI-driven technology boom has been the main theme in U.S. equities during the first half of 2026. Chip stocks such as Nvidia and Broadcom, together with hyperscale cloud service providers, helped push the Nasdaq to repeated highs. But in June, the market entered a phase of rotation and correction. On June 5, U.S. stocks recorded their sharpest single-day pullback of 2026 so far. The Nasdaq fell 4.18%, its largest one-day decline since April 2025. The S&P 500 dropped 2.64%, ending a nine-week winning streak. The Dow Jones Industrial Average fell 1.35%, while the Philadelphia Semiconductor Index plunged more than 10%. Nvidia, Broadcom, Micron and Marvell were among the core AI names leading the decline.
The U.S. stock pullback reflected geopolitical tension and uncertainty around Federal Reserve policy, but the source article also identifies the BOJ’s rate-hike impact as a factor. Tighter liquidity directly affects high-valuation growth stocks. AI companies have enormous capital-expenditure needs and rely heavily on cheap financing. A yen carry unwind reduces the flow of global risk-appetite capital, leaving high-beta technology shares exposed. Semiconductor leaders such as Nvidia and Broadcom, as well as hyperscalers such as Meta and Microsoft, are highly sensitive to valuation changes and therefore vulnerable to selling pressure. Investing.com noted that high-valuation growth sectors are among the most sensitive to changes in global liquidity, and that carry-trade unwinds often bring rapid deleveraging.
Energy costs add another layer of pressure. Middle East conflict has pushed up oil prices, which raises data-center power and cooling costs. Together with BOJ tightening, this creates a stagflation-style macro environment that tests the sustainability of AI business models. BitMex founder Arthur Hayes warned in his latest article, Reality Test, that energy reality is testing the market’s current dream state. According to the source article, higher oil prices not only raise operating costs but also slow growth in enterprise token usage, further hurting AI-related revenue expectations.
The source article also points to a supply shock from giant IPOs and political regulatory risk. SpaceX, Anthropic and OpenAI are among the companies planning concentrated listings in the second half of 2026. Their valuations are described as reaching hundreds of times sales, while lockup expirations would bring a large amount of supply to the market. At the same time, Donald Trump’s turn against AI ahead of the midterm elections adds regulatory uncertainty.
Crypto remains exposed as the highest-beta trade
Cryptocurrencies sit at the high-beta end of the global risk-asset spectrum. On one side, BOJ rate hikes lift funding costs and directly raise the cost of global leveraged trading, forcing large-scale closures of crypto leverage positions. On the other side, crypto is competing for liquidity with AI, and AI capital expenditure has already absorbed substantial market funding. The source article states that crypto has already lagged in that competition, and BOJ action would further tighten marginal liquidity.
Yahoo Finance analyst Lockridge Okoth said that a rate hike priced at 98% could trigger the next Bitcoin liquidity shock. Investing.com noted that yen appreciation and BTC weakness often move in close synchronization and are a typical signal of rising global risk aversion. The renewed concern around BOJ tightening is therefore not an isolated event. It is a signal of marginal tightening in global liquidity, arriving at the same time as Middle East geopolitical conflict pushes up oil prices, AI capital expenditure consumes liquidity, and Federal Reserve policy remains uncertain. For investors, global risk assets, particularly highly leveraged and high-valuation segments such as AI technology shares and cryptocurrencies, face clear short-term correction pressure and higher volatility, making leverage risk a central issue to manage.