Explanation of why Bitcoin dropped after news that Japan will raise interest rates

I know I'm a bit late in explaining this, but it's important to understand what actually happened.

First, a significant correction

The immediate effect you see on the chart was not due to institutions. Major banks and institutions do not react this quickly. That sharp initial movement was mostly by individual traders and programs reacting to the address.

News like this usually has a delayed effect when it comes to institutions.

Now the bigger picture

For years, interest rates near zero in Japan made the Japanese yen the funding currency. Institutions borrowed yen cheaply, converted it to US dollars, and deployed that capital into higher-yielding assets like stocks and bonds, and perhaps Bitcoin.

This is known as yen carry trade.

This is where things get interesting.

The United States is lowering interest rates while Japan is raising interest rates.

This puts pressure on institutions from both sides.

Yen funding becomes more expensive

US dollar yields start to decline

Yen carry trade becomes less attractive

This is where the real pressure comes from, and this effect shows up later, not immediately. I believe that 2026 will reveal many things.

A few more rate hikes from Japan and rate cuts from the Federal Reserve