Recently, you need to be extra cautious these past two days; something might be brewing in the market.

Friday is the Triple Witching Day—a rare occurrence happening four times a year. Options and futures expire simultaneously, causing trading volume to spike sharply, and volatility becomes unavoidable. The market is like a stirred pond; any slight breeze or disturbance can create ripples, and sentiment can easily be triggered.

But the real focus should be on Japan. Thursday’s interest rate decision is the core event. The market has already experienced a downturn recently, and investors have somewhat digested the impact of the expected rate hike in Japan. Bitcoin was dragged down, and the Nikkei index also plunged overnight. Now everyone is asking the same question: Will yen arbitrage trades be forced to close, potentially triggering a chain reaction like in July and August 2024?

Japan’s long-term interest rates have been hovering near zero, making the yen the easiest currency to borrow globally. The strategy is simple—borrow in yen, convert to USD to buy the dip in US stocks, tech stocks, or even volatile assets like Bitcoin. On paper, it seems perfect, but there’s a critical precondition: the yen must continue to depreciate.

On the flip side, if the yen starts to appreciate, borrowing costs will skyrocket. Funds leveraging this strategy will suddenly become a hot potato. The only way out is to close positions immediately and pay back the loans. The problem is, they won’t be selling yen, but rather high-volatility, high-risk assets they hold. This kind of selling acts like a dam breaking—an unstoppable chain reaction.

Therefore, in the upcoming period, two forces need to be watched simultaneously. One is the technical volatility caused by Triple Witching Day, which is purely a trading impact; the other is the potential global risk asset impact from the Bank of Japan’s policy shift. In the short term, with such high uncertainty, market turbulence is inevitable.

Finally, the old advice still applies: control leverage and manage risk exposure carefully. Volatility is indeed high, but those rushing in are often the ones getting caught. Be prepared, and only act when the right opportunity truly presents itself.