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The Bank of Japan is preparing for the biggest monetary shift in decades. The central bank plans to raise rates to 0.75% later this month, the highest level since 1995. This policy change could have global consequences for risk assets, including bitcoin and other cryptocurrencies, which have benefited from abundant liquidity in recent weeks.
End of Decades of Ultra-Loose Policy #
For years, Japan has been a key source of cheap financing for international investors. Hedge funds and trading firms borrowed massively in yen at extremely low rates to fund positions in riskier markets, including crypto. The upcoming rate hike breaks that pattern. According to Bloomberg sources, the Bank of Japan is set for a 25-basis-point increase on December 19, provided there are no major disruptions in the global or Japanese economy. The yen reacted immediately, strengthening from above 155 to about 154.56 per dollar. Governor Kazuo Ueda emphasized that the council will make an appropriate decision, the same phrasing that preceded previous rate hikes. Market participants now put the chance of a December hike at nearly 90%.
Why This Matters for Crypto #
The potential rate hike affects a crucial pillar of global risk appetite: the yen carry trade. As long as Japan offered nearly free credit, it was attractive to borrow cheap yen and build leveraged positions in higher-volatility markets. Crypto markets benefited from this, especially during recovery rallies like in November. But as rates rise, the appeal of this strategy diminishes. A stronger yen has historically led to risk reduction in macro portfolios, which could reduce the liquidity that has recently supported crypto. In that scenario, hedge funds could be forced to reduce their exposure to bitcoin and other volatile assets.
Market Impact #
Last week’s price movements illustrate how sensitive crypto remains to global interest rate shifts. Bitcoin briefly fell to $86,000 but recovered above $93,000 as U.S. stocks moved in tandem. However, the market seems to be in a wait-and-see mode until it becomes clear how aggressively the Bank of Japan will tighten policy. Analysts stress that the final rate level isn’t the biggest risk, but rather the trend break: for the first time in nearly thirty years, Japan may no longer be a source of cheap liquidity.
Outlook: Risks of Abrupt Tightening #
If the rate hike leads to a broader risk reduction in macro portfolios, pressure on crypto could increase. Highly volatile assets like bitcoin could be hit by a decline in leveraged financing and global liquidity. However, a gradual and manageable tightening path could limit the impact—especially as the likelihood of U.S. rate cuts grows, potentially bringing extra liquidity from that part of the world. For now, the crypto market remains resilient, but the December 19 rate decision could be a turning point for global risk sentiment.