The direct impact of the Bank of Japan's interest rate hike expectations
Unlike the liquidity easing that typically accompanies interest rate cuts, the Bank of Japan's interest rate hike expectations are exerting pressure on the crypto market through the following mechanisms:
· Background: The market expects the Bank of Japan to raise interest rates by 25 basis points in the near future, with a probability as high as 97%. Japan is the largest foreign holder of U.S. Treasury bonds, and its policy changes can influence global dollar liquidity and risk assets.
· Impact path: This is not an isolated event. For years, global investors have favored 'yen carry trades', borrowing low-interest yen to invest in high-yield assets such as U.S. stocks, U.S. bonds, or cryptocurrencies. Once a rate hike in Japan leads to increased borrowing costs, these trades may be unwound on a large scale, triggering sell-offs of global risk assets, including cryptocurrencies.
Historical correlation: Data shows that Bitcoin prices have fallen by 20%-30% within 4-6 weeks following the last three interest rate hikes by the Bank of Japan. Currently, Bitcoin prices have retreated from their highs.
📜 Long-term impact of domestic cryptocurrency regulation in Japan
In addition to monetary policy, Japan is undergoing a regulatory reform that could reshape its crypto market. If these policies are implemented, the long-term impact may be more profound.
· Major adjustments to tax policy: Japan plans to significantly reduce the capital gains tax rate on cryptocurrencies from a maximum of 55% to 20%, aligning it with the tax treatment of stocks. This is expected to significantly enhance the willingness of individual and institutional investors to participate in the Japanese crypto market.
· Reclassification and strengthened regulation: The Japanese Financial Services Agency plans to reclassify cryptocurrencies as "financial products." This means that crypto assets will fall under the regulatory framework of the Financial Instruments and Exchange Act, requiring strict information disclosure obligations similar to traditional securities and explicitly prohibiting insider trading.
· Exploring bank entry: Reports suggest that Japan is considering allowing domestic banks to directly trade and custody cryptocurrencies like Bitcoin. If realized, this would bring a massive influx of institutional funds and liquidity to the market.
⚖️ Comprehensive impact analysis
Overall, short-term market sentiment and long-term institutional building are having a complex interplay:
1. Short-term pain (tightening pressure): Expectations of interest rate hikes have dominated short-term market sentiment, bringing direct downward pressure on cryptocurrency prices through the chain of global capital flows.
2. Long-term benefits (institutional building): Tax reductions and regulatory clarifications aim to provide a more stable, compliant, and friendly development environment for the market, which may attract long-term capital and traditional financial institutions.
3. Market direction: The trends in the crypto market are not determined by a single factor. In addition to Japan's policies, the Federal Reserve's future interest rate path, the policy divergence of other major global central banks, and the behavior of large on-chain holders (such as miners and long-term investors) together constitute the current complex market environment.
💎 Summary and key focus areas
In summary, Japan's policy direction has a bidirectional and multi-layered impact on the cryptocurrency market. In the short term, the "headwinds" brought about by expectations of tightening monetary policy are more apparent; however, in the medium to long term, the modernization reforms of its domestic regulatory framework are expected to inject healthier vitality into the market.
For investors, the following areas can be key focus points in the future:
· The final decision of the Bank of Japan: Focus on the magnitude of interest rate hikes and guidance on future policy paths (especially in 2026).
· Progress of regulatory legislation: Focus on whether the Japanese Diet will pass relevant legislation on tax and financial product reclassification in 2026.
· Dynamics of banks: Focus on whether major Japanese banks will issue formal statements regarding the custody or trading services of crypto assets.
