The Bank of Japan is keeping interest rates unchanged, and that's the reason for the market pullback these past couple of days. There was a widespread expectation that the BOJ would raise rates, but judging by today's statements from their officials, a rate hike could be on the table for June.

The yen is actually a key provider of global dollar liquidity. A lot of capital flows through borrowing yen at low rates, then converting it to dollars to invest in higher-yielding markets. This is a classic carry trade. But if Japan raises rates, these positions will have to be closed out, and liquidity will be drained quickly.

Many people might not realize the significance of Japanese interest rates, thinking that global liquidity mainly hinges on the Fed. In reality, Japan's ultra-low rates are one of the 'faucets' of global capital. Once there's a rate hike, that faucet gets turned down, and the global markets have to tighten up.

On March 19, 2024, when the BOJ raised rates, the US stock market and crypto market's bull run came to an abrupt halt. Then on July 31, 2024, when the BOJ raised rates again, Bitcoin dropped from 62,000 to 49,000. By December 2025, after another rate hike, Bitcoin fell from 116,000 to 80,000. So, keep a close eye on the BOJ's moves in June.