Super Central Bank Week Kicks Off: BOJ Rate Hike Odds Top 70%, Carry Trade Unwinding Risks Mount - finance.biggo.com

The Bank of Japan sits at the center of a dense stretch of central bank meetings, with market-implied odds of a rate hike now above 70%. That shift matters well beyond Japan. For years, ultra-low Japanese rates made the yen a favored funding currency: investors borrowed cheaply in yen and deployed the proceeds into higher-yielding assets elsewhere.

If the BOJ tightens, that equation changes. Higher domestic rates can strengthen the yen and raise hedging costs, pressuring carry trades that depend on a weak currency and stable funding. Unwinding can be disorderly, because crowded positions tend to exit at the same time, and the resulting flows can spill into global equities, bonds, and emerging markets.

What to watch: the BOJ's actual decision and guidance, the yen's reaction, and whether other central banks meeting this week strike a hawkish or dovish tone. The key question is not one rate move, but whether Japan's policy normalization continues gradually or accelerates.