Japan's recent interest rate hike by 25 basis points to 0.75% may impact global financial conditions, according to China Merchants Bank. The Bank of Japan's decision on December 19 could alter the risk-to-reward ratio for global markets, as the reversal of yen liquidity and changes in bond market dynamics are expected to tighten conditions. The unwinding of yen carry trades, with $9 trillion in positions, may affect asset liquidity as U.S.-Japan rate differentials narrow. Additionally, the report suggests that Japanese bond risks could increase, with on-chain trading signals indicating a potential steepening of the yield curve. Short-term fiscal adjustments and long-term spending plans could further exacerbate market concerns, highlighting the broader implications of Japan's monetary policy shift.