Bank of Japan Rate Hike to 30-Year High: Impact on Global Markets and Carry Trade

The Bank of Japan (BoJ) is widely expected to raise its benchmark interest rate to 0.75% on Friday, December 19, 2025—its highest level since 1995 [1][2][3]. This rate hike threatens to upend the yen carry trade, a long-standing strategy where investors borrow yen at ultra-low rates to invest in higher-yielding assets like U.S. Treasuries and tech stocks. A BoJ rate hike would increase the cost of borrowing yen, reducing the profitability of this strategy and potentially leading to widespread position unwinding [4][5].

Recent market movements already reflect investor anticipation of the rate hike. On December 17, 2025, the NASDAQ declined 1.91%, with the S&P 500 and Dow Jones Industrial Average also registering losses—likely due to early carry trade unwinding [6]. Major tech stocks such as Apple (-1.01%) and Microsoft (-0.06%) have experienced declines, reflecting their exposure to carry trade investments [7][8]. In currency markets, the USD/JPY exchange rate currently sits around 155.82, with the yen showing relative strength ahead of the expected policy change [9][10]. Bond markets have also reacted: the 10-year Japanese government bond (JGB) yield has risen to an 18-year high of 1.983%, while the U.S. 10-year Treasury yield remains around 4.15% [11][12].

Historical context underscores the potential volatility of a BoJ rate hike. The last such increase in July 2024, which lifted rates to 0.5%, triggered a yen rally and risk aversion, causing Bitcoin to drop from approximately $65,000 to $50,000 [4].

1. The yen carry trade’s widespread use means unwinding could create ripple effects across multiple asset classes globally, not just in Japan and the U.S.
2. Tech stocks appear particularly vulnerable due to their historical popularity among carry trade investors seeking higher returns.
3. The BoJ’s rate hike would mark a significant departure from its long-standing ultra-loose monetary policy, signaling a broader shift in global central bank strategies.

• Increased market volatility as carry trade positions are unwound across asset classes.
• Potential further declines in U.S. stock indices and tech stocks if the rate hike is larger than expected.
• Currency market fluctuations, particularly for USD/JPY and other major currency pairs with yen exposure.

• A stronger yen could benefit Japanese exporters and domestic companies with foreign currency liabilities.
• Investors may reallocate assets to higher-yielding alternatives if carry trade profitability declines, potentially benefiting emerging markets with attractive yields.

This analysis examines the expected BoJ rate hike to 0.75%, its potential impact on the yen carry trade, recent market movements, and historical precedent. The report identifies tech stocks, U.S. indices, and currency markets as the primary areas of immediate concern, while noting the potential for broader global market ripple effects.