The Bank of Japan is set to increase interest rates during its December policy session, a move that would elevate the country’s benchmark rate to its highest since 1995 and could impact global risk markets, including cryptocurrencies.
Sources close to the situation informed Bloomberg that officials are considering a 25-basis-point increase to 0.75% at the Dec. 19 meeting, provided there are no significant disruptions in global markets or Japan’s domestic outlook.
The yen appreciated following the news, rising from just above 155 to approximately 154.56 per dollar on Friday.
This development affects the yen-funded carry trade, a longstanding method in finance. Hedge funds and proprietary trading desks have traditionally borrowed yen at low rates to invest in higher-risk assets, a strategy that has lasted nearly 30 years of the BOJ’s near-zero interest policy.
Higher Japanese rates diminish the allure of this trade and may compel market participants to adjust their positions, particularly in areas where leverage and liquidity are sensitive, such as bitcoin.
A stronger yen often accompanies a de-risking trend in macro portfolios, which could tighten liquidity conditions that have recently supported bitcoin’s recovery from November’s lows.
BTC dipped towards $86,000 earlier this week before bouncing back to over $93,000, influenced by U.S. equity performance and ongoing global rate expectations after a month marked by macro-driven fluctuations.
Governor Kazuo Ueda hinted on Monday that the board would reach an “appropriate decision” on rates, echoing language used before past hikes. Current market pricing suggests nearly a 90% chance of a move in December. Key ministers under Prime Minister Sanae Takaichi are not anticipated to resist this change.
Officials at the BOJ may also signal readiness for further tightening if their forecast plays out, although they remain cautious about committing to a definitive path.
For bitcoin traders, the concern lies less with Japan’s terminal rate and more with the potential shift away from a decades-long source of global liquidity.
If yen funding costs continue to increase, it may lead leveraged macro funds to reduce their exposure to BTC and similar high-volatility assets. However, a gradual and controlled tightening from the BOJ without sharp equity declines may have a limited short-term impact, particularly given the rising odds of rate cuts in the U.S.
