Markets anticipate the rate decision on Friday will keep borrowing costs low by global standards while pledging further hikes ahead.
Bitcoin News
Bitcoin (BTC) traded at $87,800 as the Bank of Japan prepared to conclude a two-day policy meeting expected to result in the second interest rate increase this year. The Japanese central bank signals continued monetary policy normalization into 2026 despite political and economic pressures.
The cryptocurrency declined nearly 30% from its Oct. 6 peak of $126,080. Markets anticipate the rate decision on Friday will keep borrowing costs low by global standards while pledging further hikes ahead.
A rate increase in the world's fourth-largest economy threatens to unwind the yen carry trade that has provided liquidity to global risk assets. The strategy involves borrowing Japanese yen at near-zero rates and investing in higher-yielding U.S. dollar assets.
Czhang Lin, head of LBank Labs, said the Bank of Japan's rate hike normalizes the yen and unwinds carry trade fuel that has supported global risk assets for years. The environment flips liquidity from expansion to contraction.
Dollar strength, equity volatility, and crypto pressure typically follow tighter Japanese monetary policy. The broader impact reduces speculation while emphasizing Bitcoin's scarcity during periods of fiat currency tightening.
Matt Hougan, Chief Investment Officer of Bitwise, described the global macro environment for crypto as mixed and confused. Japan raising rates while the U.S. lowers them creates conflicting forces that may cancel out over time.
Hougan expects macro factors to contribute less to long-term cryptocurrency returns in 2026 but increase near-term volatility. Markets swing between excitement over Fed rate cuts and fear about carry trade unwinding.
Friday's rate hike appears fully anticipated and priced into markets, according to Hougan. The scary headline about Japanese interest rates reaching a 30-year high could trigger short-term downward pressure as investors react.
Low liquidity heading into the holidays leaves Bitcoin and broader crypto markets fragile. Volatility amplifies every move during year-end trading, potentially triggering significant liquidation events across leveraged positions.
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