BOJ Rate Hike to 30-Year Peak Looms, Emerging as Fresh Headwind for Bitcoin

Higher interest rates in Japan and renewed yen strength could challenge global risk assets, including cryptocurrencies, even as U.S. monetary policy moves toward easing.

The Bank of Japan is expected to lift its policy rate by 25 basis points to 0.75% from 0.50%, marking its first increase since January, according to Nikkei. The decision, due on Dec. 19, would push borrowing costs to their highest level in nearly 30 years.

While the broader market reaction is unclear, changes in Japanese monetary conditions have historically weighed on bitcoin and the wider crypto market. A stronger yen has often coincided with bitcoin weakness, while periods of yen depreciation have tended to support higher prices. Yen appreciation tightens global liquidity, an environment in which bitcoin has typically struggled.

The currency is currently trading near 156 per dollar, modestly firmer than its late-November peak above 157.

A BoJ rate hike could also pressure bitcoin indirectly via equities by undermining the yen carry trade. For decades, hedge funds and trading desks have borrowed yen at ultra-low or negative rates to finance positions in higher-risk assets, including U.S. equities and Treasurys—an approach enabled by Japan’s long-standing accommodative policy stance.

Higher Japanese rates could reduce the appeal of these trades, potentially reversing capital flows and triggering broader risk aversion across stocks and digital assets.

Such concerns are not without precedent. When the BoJ last raised rates to 0.5% on July 31, 2024, the yen surged, contributing to a sharp risk-off move in early August that saw bitcoin fall from around $65,000 to near $50,000.

Why the outcome may differ this time

Despite the risks, the upcoming hike may not spark a similar market reaction. One reason is positioning: speculators are already net long the yen, making a sudden post-hike rally less likely. This contrasts with mid-2024, when futures data showed traders were broadly bearish on the currency.

Another factor is that Japanese bond yields have been climbing throughout the year, reaching multi-decade highs at both short and long maturities. The expected rate increase therefore represents policymakers catching up to market pricing rather than delivering a meaningful surprise.

Meanwhile, U.S. monetary conditions are easing. The Federal Reserve this week cut rates by 25 basis points to a three-year low and introduced additional liquidity measures, while the dollar index slipped to a seven-week low.

Together, these dynamics suggest the risk of a sharp yen carry unwind or broad year-end risk aversion remains relatively limited.

That said, Japan’s fiscal backdrop remains a longer-term concern. With debt nearing 240% of GDP, investors are increasingly attentive to fiscal risks as a potential source of volatility next year.

“Under Prime Minister Sanae Takaichi, significant fiscal expansion and tax cuts are being rolled out while inflation sits near 3% and the BoJ maintains an overly loose stance,” MacroHive said in a recent market note. “Rising inflation expectations and high debt levels could undermine central bank credibility, steepen JGB yields, weaken the yen, and shift Japan’s profile from safe haven toward fiscal risk.”