Is the world's last long-term bond about to be pulled? Behind the Bank of Japan's rate hike, there's a hidden mechanism for a crypto market crash.

The market is boiling over again. Bank of America, UBS, and other institutions are issuing intense statements: the Bank of Japan is about to raise interest rates to 0.75% in December, and plans to continue hiking rates every six months. As the last bastion of ultra-low interest rates globally, every move by the Bank of Japan affects the nerves of the global capital markets. Many people see the news and start to worry—liquidity really tightening? Will Bitcoin be dragged down?

But the situation is far more complex than it appears. Today, we’ll analyze the core of this event from three dimensions: actual market reactions, arbitrage logic, and long-term impacts.

Rate hike expectations are now a market consensus, but the details are key

First, confirm a basic fact: a rate hike is almost a certainty.

Several top global institutions have remarkably consistent forecast paths:

Bank of America’s plan: Raise rates to 0.75% in December, then hike every six months, continuing until 2027. This forecast is clear and provides the market with a definite expectation framework.

UBS(’s plan: Also raise to 0.75% in December, but explicitly states the terminal rate target is 1.5%, expected to be reached by mid-2027. This offers a concrete anchor point.

The central bank’s own stance: The Bank of Japan governor mentioned that the “neutral interest rate” is in a broad range of 1%-2.5%, indicating even policymakers are uncertain about the final direction.

Interestingly, the Japanese government has rarely shown support this time, adopting a stance of “you hike, I don’t intervene.” This further confirms the hike’s certainty—market expectations for a December rate increase have surged to about 80%.

But here’s a key question: confirming a rate hike does not mean confirming a sustained rapid hike. The market is full of doubts about the subsequent pace.

Arbitrage unwinding: the real threat in crypto

Why would a rate hike in Japan directly impact the crypto market? The answer points to a long-overlooked mechanism: yen arbitrage trading.

Over the past decade, Japanese interest rates have been abnormally low. Major global hedge funds and institutional investors have played a simple yet effective game:

1. Borrow yen at extremely low cost
2. Convert yen into USD or other high-yield currencies
3. Invest this money in high-yield assets—US Treasuries, US stocks, cryptocurrencies

The core appeal of this logic is interest rate arbitrage: borrowing costs near zero, yet earning returns far above. As a result, yen arbitrage trading once grew massively, becoming a key liquidity source supporting global risk assets (especially crypto).

Now, the rules have changed.

Japanese rate hikes mean:

• Borrowing yen becomes more expensive
• Yen is expected to appreciate, exposing arbitrageurs to exchange rate risk
• The easy arbitrage space is significantly compressed

In this scenario, large institutions will act quickly: sell off high-risk assets (cryptocurrencies foremost), convert back to yen, and repay debts early.

This is the unwinding of arbitrage positions. When countless institutions do this simultaneously, the market faces concentrated selling pressure. Bitcoin, as one of the most liquid risk assets, often bears the brunt—because it’s quick to liquidate, with relatively deep markets, making it the easiest target for dumping.

Strange phenomenon: the market doesn’t seem to fully believe this rate hike

But an intriguing phenomenon has emerged.

Despite the hype around rate hike expectations, the yen has not appreciated as expected. Instead, it has shown slight weakness against the dollar, stabilizing around 1 USD = 155 JPY.

What does this reveal?

The market is voting with its feet. Traders’ actual actions send a signal: even if the rate hike occurs, doubts remain about whether subsequent hikes will continue.

Many forex traders and analysts believe the Bank of Japan may lack the actual capacity to implement sustained hikes, finding it difficult to raise rates to the neutral lower bound of 1%. Some institutional speculators are even continuing to sell yen, betting that this rate hike cycle will be halted midway.

This reflects the market’s real view: The rate hike driven by the Bank of Japan is more symbolic than powerful. Inflation and yen depreciation pressures force the central bank to act, but its deep-rooted easing policies and economic difficulties suggest this won’t be a radical hiking cycle.

In other words, the “long nail” (long-term low rates) may loosen, but the pace and extent of loosening might be far less than initially expected.

Short-term shock, medium-term buildup—how should the crypto world respond

Looking at the timeline, the impact can be divided into two layers:

Short-term (next 2-4 weeks): defensive stance

Before and after the December meeting, market sentiment will likely fluctuate. Once the hike is confirmed, arbitrage unwinding will trigger short-term liquidity tightening. Current data shows BTC around $88.43K (down 1.59% in 24h), ETH near $2.95K (down 0.80%), both relatively fragile.

Leverage traders should be especially cautious. During this period, it’s best to reduce positions and leverage. Key levels like ETH’s $3180 will be critical for market confidence. If this level breaks, the next support is around $3060.

Medium-term (1-6 months): potential turning point

The end of zero interest rate policy by the Bank of Japan marks a turning point for the world’s last loose monetary policy. This may seem bearish, but in a longer cycle, it could redefine Bitcoin’s appeal.

As major economies normalize interest rates, the traditional fiat credit game becomes more difficult. Conversely, Bitcoin, as a non-sovereign asset beyond traditional monetary policy constraints, may see its hedge value re-recognized. Historical experience shows that after initial shocks, BTC often exhibits a “dip then stabilize or rebound” pattern.

Operational guidance: layered responses

Short-term )next 2-4 weeks(

• Control positions, reduce leverage, avoid blindly betting on directions before the meeting
• Focus on ETH $3180 and key BTC support levels
• If market uses negative news to dump, watch whether strong supports like $3060 can hold

Medium-term )1-6 months(

• If panic selling occurs, spot traders can gradually accumulate
• Remember, profits come from the cycle, not from volatility
• Wait for long-term valuation to reset

Two key signals to watch

1. Yen exchange rate: If yen weakens after the hike, it indicates market disbelief in the central bank, and the impact will quickly fade
2. US stocks, especially tech stocks: They are bigger carriers of yen arbitrage. A crash in US stocks would have a greater impact on the crypto space than the rate hike itself

Final words

The Bank of Japan’s rate hike seems like a heavy blow to global liquidity. But in reality, it might just be a “second kick”—a loud noise with limited power.

The true script in the crypto world still depends on its own cycle, influenced by Fed policies. Instead of being scared by sensational headlines, stay calm and adapt flexibly. Surviving chaos—and even thriving—requires resilience and wisdom.