The impact of the Bank of Japan's interest rate hike on the cryptocurrency market

Japan’s long-term maintenance of extremely low interest rates allows global investors to borrow yen at low cost, then exchange it for dollars and other currencies to invest in U.S. Treasury bonds, technology stocks, or high-yield risk assets like Bitcoin, a strategy known as the “yen carry trade.”

An interest rate hike by the Bank of Japan would directly increase yen borrowing costs and is usually accompanied by expectations of yen appreciation, triggering global investors to reverse their positions.

This process would lead to capital outflows from various risk assets, including cryptocurrencies, flowing back into Japan, resulting in market liquidity tightening and price declines.

In the short term, this is positive for short sellers, mainly because an interest rate hike could signal the end of Japan’s years-long era of “cheap money,” reducing the availability of low-cost yen capital in global markets and impacting leverage in risk assets.

However, from the perspective of crypto players, one might consider positioning before the Bank of Japan’s rate hike, betting on a bearish move. But caution is necessary due to the market’s rapid changes; it’s best to minimize leverage to avoid liquidation risks and survive.

Additionally, it is important to observe whether the medium- to long-term outlook turns bearish after Japan’s rate hike, especially focusing on the future interest rate path (particularly for 2026) indicated by the Bank of Japan. Any signals of further tightening could prolong market pressure.