The Bank of Japan raised interest rates for the first time in 17 years, yet the market didn’t experience major waves. Many people are panicking, but what we should really be concerned about is not “whether there’s a rate hike,” but “by how much.”

Carry trades, simply put, involve borrowing yen at almost zero cost and putting it into high-yield assets around the world to earn the spread. Now that the BOJ has raised rates, borrowing costs have gone up, so in theory this should trigger a sell-off—sell assets, convert to yen, pay back the loans. The logic is sound.

But the issue is the magnitude.

Trillions of dollars in yen carry trade funds are spread throughout the global financial system; this is real “shadow liquidity.” Even with the rate hike, yen interest rates are still near zero, and the US-Japan interest rate differential remains huge. Most players have no reason to rush for the exit. This round of rate hikes seems more like a tentative move, moderate in scale, with limited short-term capital repatriation. So it’s reasonable that the market is calm.

If there’s real trouble ahead, it will depend on future “dose upgrades”—if the interest rate differential narrows rapidly, then we’ll see a panic exit. When that happens, the first to be hit hardest will definitely be cryptocurrencies and highly leveraged tech stocks—these high-risk assets are most sensitive to liquidity. Only then will the broader stock market and high-yield bonds feel the impact.

My view: This rate hike is more symbolic, possibly causing some short-term volatility but unlikely to trigger a systemic crash. The real risk lies in the future pace of yen appreciation and the standoff between the Fed and the BOJ—who will blink first.