Japan Just Raised Rates to a 31-Year High. Watch What Happens Next.

The Bank of Japan lifted its policy rate to its highest level since 1995. Most central banks hiking into a soft global backdrop would rattle markets. The interesting question is what this signals about where global capital flows next.

Japan has spent decades as the world’s cheap-money ATM. Investors borrowed in yen at near-zero rates and deployed that capital into higher-yielding assets everywhere else. When Japan’s rate advantage erodes, those trades get unwound. The dollar index closed at 100.35, up from 99.63 earlier this week, which may partly reflect that capital repatriation dynamic beginning to price in.

Equities had a strong session Thursday. The S&P 500 closed at 7,637.76, up 1.14%. The Nasdaq led at +1.69%. Oil dropped sharply, closing at $96.19, down 5.61%, on Saudi supply hopes. The 10-year Treasury yield sits at 5.01% against the Fed’s 3.75% to 4.0% target range, a gap wide enough to make long-duration borrowing genuinely expensive for businesses and consumers.

On deck today: no major U.S. data releases are scheduled, which puts the focus squarely on how markets digest the Bank of Japan news heading into the weekend.

Higher Japanese rates tighten global financial conditions in ways that don’t show up in U.S. inflation data but do affect asset prices and capital flows. That is the transmission channel worth tracking.

The full breakdown of where rising rates and oil pressure intersect lands Sunday in The Long View. It is already in progress, and it is free.

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