Rising Yen and Shifting Global Liquidity Add Risk to Crypto Assets
The Bank of Japan is widely expected to raise its benchmark interest rate to 0.75%, marking the highest level in roughly three decades. The move would represent a 25-basis-point increase from the current 0.50% rate and signal a continued shift away from Japan’s long-standing ultra-loose monetary policy.
Historically, changes in Japanese interest rates have had meaningful ripple effects across global markets, including cryptocurrencies. A stronger Japanese yen has often coincided with downward pressure on bitcoin prices, as tighter financial conditions reduce global risk appetite. The yen has already strengthened modestly, trading near 156 per U.S. dollar, reinforcing concerns around liquidity-sensitive assets.
One key risk centers on the yen carry trade, a strategy where investors borrow cheaply in yen to invest in higher-yielding assets such as U.S. equities and cryptocurrencies. As Japanese rates rise and U.S. rates fall, the economics of these trades weaken, potentially forcing leveraged funds to unwind positions. Such unwinds have previously triggered sharp sell-offs in bitcoin.
However, market dynamics today differ from past cycles. Japanese bond yields have already climbed to multi-decade highs, and speculative positioning in the yen is now more balanced. At the same time, easing U.S. monetary policy may help offset some downside risks.
Even so, Japan’s elevated debt levels and rising inflation expectations remain a potential source of volatility, keeping bitcoin exposed to macro-driven swings heading into the new year.
Disclaimer
This content is for informational purposes only and does not constitute financial, investment, or legal advice. Cryptocurrency trading involves risk and may result in financial loss.