Higher rates in Japan are sending Bitcoin into the crosshairs of a potential yen carry unwind.

Japan Rate Hike Looms, Bitcoin Faces Potential Pressure from Yen Carry Unwind

The Bank of Japan is preparing to raise interest rates at its December policy meeting, a move that would push the nation’s benchmark rate to its highest level since 1995 and send ripples through global markets, including cryptocurrencies.

Sources told Bloomberg that policymakers are leaning toward a 25-basis-point increase to 0.75% at the Dec. 19 meeting, provided there are no major shocks to global markets or Japan’s domestic economy. Following the report, the yen strengthened, rising from just above 155 to roughly 154.56 per dollar on Friday.

The implications are significant for the yen-funded carry trade, a longstanding macro-financial mechanism. Hedge funds and trading desks have historically borrowed yen at ultra-low rates to fund leveraged positions in higher-yielding assets — a setup that persisted through nearly three decades of near-zero BOJ policy.

Rising Japanese rates reduce the appeal of this trade and could trigger repositioning in markets where leverage and liquidity are most sensitive, including bitcoin. A stronger yen often coincides with risk-off sentiment, which could tighten liquidity that recently helped BTC rebound from November lows.

Bitcoin earlier this week dipped toward $86,000 before recovering to over $93,000 alongside U.S. equities, reflecting its sensitivity to global rate expectations amid ongoing macro volatility.

BOJ Governor Kazuo Ueda indicated the board will make an “appropriate decision” on rates, echoing phrasing used before prior hikes. Market pricing now implies nearly a 90% chance of a December move, with Prime Minister Sanae Takaichi’s key ministers unlikely to oppose the shift.

Officials are also expected to signal openness to further tightening if economic conditions warrant, while stopping short of committing to a fixed path.

For bitcoin traders, the greater concern is not Japan’s terminal rate but the potential disruption to a decades-long source of global liquidity. Rising yen funding costs may prompt leveraged funds to reduce exposure to BTC and other high-volatility assets. However, a gradual, controlled BOJ tightening without major equity drawdowns could limit near-term impact, particularly amid rising expectations for U.S. rate cuts