Recently, it's important to keep a close eye on the Bank of Japan's moves. Yesterday, news broke that the Japanese government has basically given the green light for the central bank to signal a rate hike in mid-December—a significant development.

Why does this matter? If carry trades really start to unwind, a large amount of capital will exit the US market and be converted back into yen, flowing back to Japan. This will put downward pressure on the USD/JPY exchange rate. We're already seeing signs of this: the exchange rate has been falling for several days and has dropped below the key 155 level, indicating that some funds are indeed shifting from dollar assets to yen.

While the impact may not be as intense as the wave we saw last July and August, we still need to be cautious about the potential chain reactions from a sustained sharp decline. Besides watching the exchange rate itself, there are three core indicators worth tracking:

**US-Japan Yield Spread** — Focus on the difference in 10-year government bond yields. Currently, it's 2.22% (US at 4.10% minus Japan at 1.88%). If this narrows to below 2%, the profit margin for carry trades will be significantly squeezed, accelerating capital outflows.

**CFTC Yen Short Positions** — This directly reflects the scale of speculative bearish bets against the yen and serves as a market sentiment indicator. The current net short position is 79.5K contracts, roughly equivalent to a $10 billion exposure, down 15% from early November. If weekly reductions exceed 20%, it's basically confirmation that the unwinding has officially begun. Recall that in July last year, net yen shorts surged to a peak of 160K, then plummeted by 100K in a short period—market volatility was intense at the time.

**Capital Flows** — (Original text to be continued)

In summary, the Bank of Japan's upcoming statements and changes in these indicators over the next few weeks will be key clues for judging the capital landscape.