Is the Bank of Japan about to make a move? The probability of a rate hike has already broken 60%!

Recently, remarks from the Bank of Japan’s governor have left the market on edge. With just one sentence—“a rate hike may be considered in December”—the market’s expected probability of a rate hike has soared from 30% to 80% in just two weeks. Global capital is starting to feel the pressure.

Why is this such a big deal? Because Japan has long been the world’s “free money ATM.” Over the years, massive amounts of international capital have borrowed yen at near-zero cost, then used it to speculate on US stocks, bet on Bitcoin, and engage in various high-risk investments.

Now that Japan is about to tighten the faucet, those who borrowed yen will have to rush to sell off assets and convert back to yen to repay their debts. Once the large-scale capital repatriation begins, the chain reaction won’t be a joke.

The data is already speaking: Japan’s two-year government bond yield has surged to its highest point since the 2008 financial crisis, and the yen has climbed to around 155.4 against the dollar. Panic is spreading throughout the market.

What’s even more surreal is that Japan is talking about raising rates and tightening monetary policy, while at the same time planning to issue an additional 6.3 trillion yen in government bonds to stimulate the economy. This move has left investors completely baffled—what exactly are they trying to do?

Expectations for a Fed rate cut in December are still rising. If the Bank of Japan actually hikes rates at this time, the yen will almost certainly rebound strongly. When that happens, global carry trades could face a massive unwinding.