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This week’s spotlight turns to growing macro divergence, with Japan preparing for a potential rate hike that would mark its highest policy level since 1995, an event that could strengthen the yen, trigger capital repatriation, and tighten global liquidity. Meanwhile, the Federal Reserve remains on the verge of easing, with markets still pricing a December cut as the base case despite rapidly shifting expectations throughout the past month.

Here’s what we’ll cover today:

Let’s dive in 👇

Japan's central bank appears increasingly likely to raise interest rates at its December 18–19 meeting, with Governor Kazuo Ueda signaling that the BOJ will evaluate the merits of lifting rates from the current 0.5% level. As the chart shows, such a move would push Japanese policy rates to their highest point since 1995, a historic pivot away from the ultra-loose monetary framework that has defined Japan for decades. For global markets, a BOJ hike would matter significantly: tighter Japanese policy tends to strengthen the yen, encourage capital repatriation, and reduce global liquidity, often weighing on risk assets, including crypto.

Cryptocurrency markets have entered a noticeably quieter phase after October’s extreme volatility, reflected in the sharp pullback in perpetual futures volumes on Hyperliquid. Following the “Black Friday” liquidation spike, when volumes briefly surged above $30B, trading activity has cooled back into the $5–10B/day range through November and early December. This normalization indicates that the speculative leverage cycle has eased and traders are positioning more cautiously, likely waiting for clearer macro direction before re-risking. This cooling is ultimately healthy: it reduces fragility in the system, lowers the probability of another forced-deleveraging event, and gives the market room to stabilize before the next major catalyst.

Market expectations for a December Federal Reserve rate cut have swung dramatically in recent weeks, with implied probabilities briefly approaching a full 25bps cut again. As the chart shows, confidence in a cut dropped sharply from near-certainty in mid-October to deep uncertainty by early December, with current pricing reflecting roughly 20–25bps of expected easing, effectively signaling that traders still see a cut as the base case. For investors, this carries important implications: if the Fed delivers, liquidity conditions should improve into year-end, supporting risk assets. But if the Fed disappoints, markets that are currently priced for dovish outcomes, including equities and crypto, may face renewed volatility.

The S&P 500 continues to show noteworthy resilience, holding near the 6,800 region as we approach the final weeks of 2025. The chart illustrates how the index recovered quickly from the sharp early-November selloff, climbing steadily back toward all-time highs. This strength reflects investor confidence that any economic slowdown will remain shallow and that corporate earnings can support elevated valuations. However, with the index priced near perfection and global central banks entering a pivotal stretch of policy decisions, markets remain vulnerable. A hawkish surprise from the Fed or a sharper-than-expected economic deceleration could introduce meaningful downside volatility.

Taken together, a potentially tightening BOJ, a Fed on the verge of easing, crypto leverage resetting, and equities pushing toward records, the macro backdrop is becoming increasingly complex. Diverging monetary policies, shifting liquidity conditions, and the return of macro-driven volatility could drive large moves in currencies, bonds, and risk assets as we head into 2026. Investors should stay focused on the BOJ and Fed decisions in the coming weeks, as the next major macro impulse is likely to emerge directly from central bank policy divergence.