A historic moment as the Bank of Japan hikes rates to a 30-year high, impacting global markets. With carry trades, global liquidity, and risky assets at play, the crypto market is directly affected. Could this lead to a major shock or a hidden opportunity?
On December 19, Bank of Japan Governor Kazuo Ueda announced a 0.25 percentage point rate increase. This brings the benchmark interest rate to 0.75%. This decision was adopted unanimously by the monetary policy committee. It is based on increased confidence in the country’s economic trajectory. This is a strong signal that ends the era of near-zero rates that has characterized Japan since the mid-1990s.
The yen immediately reacted by dropping 0.4% to reach 156.16 against the dollar before stabilizing. Takayasu Kudo is the chief economist at BofA Securities Japan. According to him, this yen weakness is explained by the absence of a more restrictive tone than anticipated. Markets had perhaps hoped for an even more hawkish stance from the central bank.
This rate hike directly undermines the yen carry trade strategy, a practice widely used by institutional investors. For years, they have borrowed yen at low cost to reinvest the funds in higher-yielding assets, primarily tech stocks and cryptocurrencies. With higher rates, this strategy becomes less attractive, which mechanically reduces capital flows to risky assets like Bitcoin and Ethereum.
Governor Ueda clearly indicated that the monetary tightening cycle is only just beginning. The BOJ will continue to gradually increase borrowing costs if the Japanese economy maintains its positive momentum. Markets now anticipate two additional hikes in 2026 and another in 2027, which could push rates toward 1.5% within a few years.
Japanese government bonds have already priced in this paradigm shift. The yield on 10-year government bonds crossed the 2% threshold for the first time since 2006, reflecting significantly tighter financial conditions. This rise in bond yields strengthens the attractiveness of traditional investments at the expense of speculative assets.
On the equity side, the Nikkei 225 has surprisingly held up well, maintaining most of its gains. This resilience is probably explained by expectations of more robust economic growth, which would offset the negative impact of rising rates on valuations.
The timing of this decision is particularly bad for the crypto market. Bitcoin has already been showing signs of weakness for several weeks, oscillating around $86,000 with increased volatility. Historically, BOJ monetary tightening has consistently weighed on Bitcoin’s price, triggering corrections of 20% to 30% in the following weeks.
Macro analysts are unanimous: pressure on Bitcoin should intensify in the coming days. If the psychological support level of $80,000 gives way, a technical pullback to $63,000 becomes a plausible scenario. This level would correspond to a correction of approximately 27% from current highs, a movement perfectly consistent with previous episodes of monetary tightening.
The correlation between risky assets and Japanese monetary policy should not be overlooked. The yen carry trade has fueled a significant portion of the crypto bull run of 2023-2024. With the gradual unwinding of this strategy, inflows to the crypto market could dry up, depriving Bitcoin of an essential growth driver. Informed traders are now closely monitoring the evolution of the rate differential between Japan and the United States, a key indicator for anticipating capital movements.
Related articles:
Passionate about the crypto world, he explores the blockchain ecosystem to extract the most essential insights. With his expertise in SEO and web writing, he transforms news and technical analysis into clear, engaging, and impactful content. His goal? To help investors better understand the opportunities and challenges of the crypto market.
DISCLAIMER
This article is for informational purposes only and should not be considered as investment advice. Trading cryptocurrencies involves risks, and it is important not to invest more than you can afford to lose.
InvestX is not responsible for the quality of the products or services presented on this page and cannot be held liable, directly or indirectly, for any damage or loss caused by the use of any product or service featured in this article. Investments in crypto assets are inherently risky; readers should conduct their own research before taking any action and invest only within their financial means. This article does not constitute investment advice.
Risk Warning : Trading financial instruments and/or cryptocurrencies carries a high level of risk, including the possibility of losing all or part of your investment. It may not be suitable for all investors. Cryptocurrency prices are highly volatile and can be influenced by external factors such as financial, regulatory, or political events. Margin trading increases financial risks.
CFDs (Contracts for Difference) are complex instruments with a high risk of rapid capital loss due to leverage. Between 74% and 89% of retail investor accounts lose money when trading CFDs. You should assess whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Before engaging in financial or cryptocurrency trading, you must be fully informed about the associated risks and fees, carefully evaluate your investment objectives, level of experience, and risk tolerance, and seek professional advice if needed. InvestX.fr and the InvestX application may provide general market commentary, which does not constitute investment advice and should not be interpreted as such. Please consult an independent financial advisor for any investment-related questions. InvestX.fr disclaims any liability for errors, misinvestments, inaccuracies, or omissions and does not guarantee the accuracy or completeness of the information, texts, graphics, links, or other materials provided.
Some of the partners featured on this site may not be regulated in your country. It is your responsibility to verify the compliance of these services with local regulations before using them.
