A rise in Japan's interest rates often creates a negative 'domino effect' in the cryptocurrency market, primarily due to the unwinding of the so-called Yen Carry Trade.
Although Bitcoin is seen by many as 'digital gold', it still behaves like a risky asset that depends on abundant global liquidity.
For decades, investors have borrowed yen at almost zero interest rates to buy higher-yielding assets elsewhere, including Bitcoin and Ethereum.
If interest rates in Japan rise, the cost of this loan increases and the yen appreciates. This forces large investors to sell their cryptos to pay off yen-denominated debts before they become too expensive.
Historical data from 2024 and 2025 shows that the crypto market reacted poorly to the latest movements by the Bank of Japan:
March 2024: BTC fell about 23% after signs of monetary tightening.
July 2024: A new high coincided with a correction of 26%.
Bitcoin has already been under pressure this week, trading below 86,000, precisely due to the anticipation of this announcement.
Japan is the largest holder of US Treasury securities. When interest rates rise there, capital tends to flow back to Japan. Fewer dollars circulating in the global system means less fuel for parabolic highs in crypto assets. Here we have three scenarios:
👉 Rate hike of 0.25 - It is already partially priced in, but the unwinding of leveraged positions could lead to rapid declines.
👉 Maintenance of Interest Rates - Would surprise the market positively, bringing relief and a search for risk.
👉 Aggressive Tone - Sharp decline if the Bank of Japan signals that interest rates will rise much more in 2026, the risk market may enter panic mode.
