My view is that this matter has an impact, but don't overthink it.

First, let's talk about what’s going on with Japan’s rate hike this time. To put it simply, Japan isn’t following the hardcore tightening approach of the Federal Reserve. They are actually just slightly tightening from an extremely loose stance, returning to a less extreme normalcy. The background is clear: inflation is no longer a sudden shock, the yen has been persistently weak, and the financial system has been distorted by ultra-loose policies, so they need to gradually pull back. The characteristics of this adjustment are four words—slow, small, low, pause. The pace is extremely slow, the magnitude is surprisingly small, the set upper limit is already low, and they can always call a halt. Japan just wants to stabilize the exchange rate, expectations, and the entire financial system.

Now, regarding the debt issue. Many people, upon hearing about Japan’s rate hike, immediately think: Japan’s government debt is 250% of GDP. It’s indeed alarming. But there’s a key difference—Japan’s debt strategy is fundamentally different from others. First, most of Japan’s debt is domestic, mainly held by domestic institutions and the central bank. Second, the maturity of government bonds is very long (starting from 15 or 30 years), so the re-pricing cycle is quite slow. Most importantly, the Bank of Japan and the Ministry of Finance have effectively merged their balance sheets, so interest costs don’t hit all at once. Japan’s real concern has never been small issues like paying a bit more interest, but rather losing control of interest rates and the credibility of the central bank. As long as the pace is managed properly, a slight increase in interest rates is not a problem at all.

And what about the US stock market? The valuation logic of US stocks has never been influenced by Japan’s situation. The core variables affecting US stocks are three: the US economy and corporate earnings cycle, the direction of technology and capital expenditure, and what the Federal Reserve will do next. Compared to that, Japan’s factors? They carry little weight.