December’s global markets are witnessing a textbook-level monetary policy showdown—the Fed is likely to restart rate cuts, while the Bank of Japan is firmly set on hiking rates. With this divergence—one easing, one tightening—where will the capital flow?

Let’s start with Japan. The probability of a rate hike on December 19 has been priced in at 85% by the market, and that’s not without reason. Tokyo’s CPI has stayed above 2% for 43 consecutive months, so inflationary pressure is clearly present. More importantly, with the Fed cutting rates and narrowing the interest rate differential, Japan has a prime opportunity to attract back the capital that previously flowed out. Think about it: the US is loosening, Japan is tightening, so naturally, money will seek a new destination.

Capital flows are already being reshuffled. US equities are under short-term pressure, and funds relying on low-interest-rate arbitrage are pulling out; crypto is even worse, with Bitcoin down 23% this month; the US bond market is facing a tug-of-war—Japan is selling US Treasuries, but Fed rate cuts are supporting demand; meanwhile, gold and the yen are starting to shine as safe-haven assets.

However, it’s worth noting that Japan’s hike to 0.75% doesn’t really count as true tightening yet. Their own estimate for the neutral rate is in the 1%-2.5% range, so at this level, it’s really just moving from “ultra-loose” to “mildly loose” monetary policy. Most likely, they’ll proceed cautiously—one or two hikes per year, 25 basis points each time—since government debt has already soared to 229.6%, and moving too aggressively could trigger problems.

So here’s the question: where will this money, squeezed out by shifting policies, flow next? Will it pour into gold, bottom-fish Bitcoin again, or find an entirely new allocation direction? What’s your take?