The Bank of Japan is set to hold a policy meeting on December 18-19, significantly escalating tensions in global financial markets, particularly the cryptocurrency market. Bitcoin (BTC) is considered one of the most likely risk assets to be impacted this week. The market widely believes that a Bank of Japan interest rate hike is almost a certainty, and this policy shift could become a crucial factor influencing market trends before the end of the year. Polymarket currently projects a 98% probability of a Bank of Japan rate hike, with only a 2% chance that policymakers will maintain the current rate. This is purely market observation and not investment advice.
The expectation of an interest rate hike is highly consistent, and although the magnitude is small, it is of great significance.
Market forecasters and macro analysts are largely in agreement that the Bank of Japan (BOJ) will raise interest rates soon. The market expects the BOJ to raise rates by 25 basis points, bringing the policy rate to 0.75%, the highest level in nearly 20 years. While this rate is still relatively low compared to other major central banks, it is of great symbolic significance for Japan, which has long pursued ultra-loose monetary policy, and signifies the gradual end of the era of low interest rates.
The end of Japan's low-interest-rate era impacts yen carry trade.
Japan has long been a major source of low-cost global capital. For decades, institutional investors have borrowed yen at extremely low interest rates and then invested the funds in global stock, bond, and cryptocurrency markets, creating what is known as yen carry trades. However, as Japanese bond yields rise, the attractiveness of these trades is declining, and the market structure is beginning to change. Some online analysts have also pointed out that if yields continue to climb, highly leveraged positions built up with yen financing in the past may be forced to close. This will prompt investors to sell risky assets to repay loans, and Bitcoin, which is highly sensitive to liquidity, is often the first to be affected. The recent drop in Bitcoin's price below the psychological level of $90,000 indicates that market sentiment has become more conservative.
The risk of leverage reduction is rising, with Bitcoin bearing the brunt.
Market concerns stem from past experience. Looking back at the market reaction to previous interest rate hikes by the Bank of Japan, Bitcoin prices have consistently seen significant corrections. After the March 2024 rate hike, Bitcoin prices fell by approximately 23%, followed by another 25% drop after the July 2024 hike, and even plummeted by over 30% after the January 2025 rate hike. This historical data makes investors particularly cautious about this week's policy meeting.
Some traders believe a strong correlation has formed between the Bank of Japan's interest rate hikes and Bitcoin price declines. Analysts warn that if history repeats itself, Bitcoin prices could plummet after the policy announcement, potentially even falling below the $70,000 mark, equivalent to a 20% drop from current levels. Therefore, they urge investors to adjust their positions in advance to prepare for possible sharp fluctuations.
Is the simultaneous occurrence of the Bank of Japan's interest rate hike and the Federal Reserve's interest rate cut a long-term positive factor?
However, the market isn't entirely pessimistic. Some macro analysts have offered a different perspective, arguing that a simultaneous interest rate hike by the Bank of Japan and a rate cut by the US Federal Reserve could actually be a medium- to long-term positive for cryptocurrencies. In this scenario, a Fed rate cut would help release dollar liquidity and weaken the dollar, while a gradual interest rate hike by the Bank of Japan could boost the yen without triggering a global liquidity crunch.
Macro analyst Quantum Ascend describes this situation as a policy shift rather than a liquidity shock. According to this view, a Fed rate cut would inject dollar liquidity and weaken the dollar, while a Bank of Japan gradual rate hike would boost the yen without significantly disrupting global liquidity. Quantum Ascend believes the result is a shift of capital towards risk assets with asymmetric upside potential, which is precisely the "best option" for cryptocurrencies.
This view holds that a shift in policy mix could prompt a reallocation of funds towards risky assets with high growth potential and asymmetric returns, with cryptocurrencies being a prime example. However, despite the divergence in the medium-term outlook, the short-term market remains quite fragile.
Some analysts point out that pressure in the Japanese bond market has forced the Bank of Japan to take action, which could trigger a chain reaction of unwinding arbitrage positions, further disrupting the stock market. The high-level fluctuations in major global stock indices and the simultaneous rise in yields are both seen as signals of accumulating market pressure.
In terms of price performance, Bitcoin traded sideways throughout December, reflecting insufficient liquidity and limited investor participation ahead of the year-end holidays. Analysts believe that this stagnation often marks a transitional phase before major market movements.
With the stock market showing signs of topping out, global yields rising, and Bitcoin highly sensitive to the Bank of Japan's policies, this policy meeting is seen by the market as the most important event of the year. Whether this rate hike will trigger a new round of sharp declines or only bring short-term volatility, paving the way for a subsequent rebound, depends on changes in global liquidity in the coming weeks and how the market digests the shift in Japanese policy.
This article, "The Shadow of Interest Rate Hikes Looms Over the Crypto Market: Could the Bank of Japan's Decision This Week Trigger a Drop in Bitcoin Below $70,000?", originally appeared on ABMedia .
