Japan has delivered an unpleasant surprise to global markets: inflation in the country is accelerating faster than forecast and could trigger a wave of sell-offs worldwide. In October, output prices of local producers rose by 7.1%, while the consensus forecast assumed growth of only 6.5%.
The fresh report on the producer price index (PPI) records price dynamics in corporate transactions. Import prices in Japan jumped by 24.8% in yen — currency weakening makes imported fuel and raw materials more expensive, and companies pass part of these costs on to customers.
Pressure on the Bank of Japan is mounting: the regulator will have to consider a rate hike at its meeting on December 17–18.
Japan could rewrite history in December
This year the BOJ has already raised its key rate twice — in June and September. It now stands at 1.25%. A new hike would be the third in a calendar year — something that has not happened since 1989.
The contrast is telling. In 1989, the Bank of Japan raised its former official rate three times, after which the country lived for decades with near-zero rates, then reached negative rates, abolishing them only in March 2024. Most analysts expect a hike in December: in an October survey, 54 of 78 economists chose this scenario, although there is no absolute certainty. Within the regulator itself there is no unified position — some representatives insist on caution due to weak domestic demand.
Japan's inflation threatens bitcoin and US stocks
For US investors, the main risk is tied to the yen carry trade. Investors have long borrowed cheap yen to buy higher-yielding assets abroad. A rise in the Japanese central bank's rate reduces the benefit of such a scheme. If the yen sharply strengthens, servicing debts will become more expensive — funds may have to sell US stocks and riskier instruments, such as bitcoin.
A similar situation has already occurred: in August 2024, a rapid rise in the yen and the unwinding of borrowed positions intensified the sell-off in global markets.
US government bonds may face another consequence. In August, Japan held US Treasury securities worth about $1.07 trillion. Rising yields in the domestic market could prompt some Japanese investors to reduce their holdings of US paper — this will lead to higher yields on US government bonds.
A rate hike in December alone does not guarantee mass selling. The yen on Thursday maintained a weak position around 160 per dollar, and investors have been expecting BOJ policy tightening for several weeks. A more significant risk could be a series of sharper rate hikes in 2027, especially if they cause a sudden strengthening of the yen.
Cryptalist analysis: The market underestimates the risk of the Japanese carry trade as a trigger for cross-asset volatility. The historical precedent of August 2024 shows that a sharp strengthening of the yen can simultaneously pressure both high-yielding stocks and cryptocurrencies. Institutional investors should closely monitor the BOJ's decisions on December 17–18 and the dynamics of the USD/JPY pair as a leading risk indicator.