Markets are preparing for the critical policy meeting of the Bank of Japan (BOJ) on December 18-19. Expectations indicate a near-certain interest rate hike.
Both the prediction platforms and macro analysts converge at the same point: Japan is expected to raise interest rates by 25 basis points. This move could be strong enough to affect not only its own bond market but also global risk assets, particularly Bitcoin.
The Bank of Japan's Interest Rate Hike Has Reignited Bitcoin's Liquidity Sensitivity
Polymarket currently gives a 98% chance to the BOJ's interest rate hike. Only 2% believe that rates will remain unchanged.
The general sentiment among crypto analysts is not positive: the leading cryptocurrency is currently trading below the psychological support of $90,000.
If this step occurs, Japan's policy rate will rise to 75 basis points, the highest in the last twenty years. While it may seem like a modest increase on a global scale, it represents a significant change considering Japan has long been a source of cheap leverage worldwide.
For years, institutions have been borrowing yen at very low interest rates and moving that money into global equities, bonds, and cryptocurrency markets. This is called yen carry trade. Now, this strategy is at risk.
Analyst Mister Crypto wrote: 'For decades, the yen has been the currency people most borrowed and converted into other assets and currencies... However, as Japanese bond yields rise rapidly, this carry trade is losing its power.'
If yields continue to climb, yen-funded leveraged positions may have to be unwound. In this case, investors might turn to selling risky assets to cover their debts.
Concerns about liquidity are rising in Bitcoin's BOJ history.
This historical backdrop is fueling concerns in the cryptocurrency market. Bitcoin is currently at $88,956 and has decreased by 1.16% in the last 24 hours.
However, traders are focusing more on what happened after previous BOJ interest rate hikes rather than the current prices.
In March 2024, Bitcoin's price fell by about 23%.
In July 2024, it had dropped by approximately 25%.
After the interest rate hike in January 2025, BTC experienced a loss of more than 30%.
In light of all this history, many traders are warning investors about potential fluctuations and expecting sharp movements in the market this week.
Analyst 0xNobler warned: 'Every time Japan raises rates, Bitcoin drops sharply between 20-25%. They will pull rates back to 75 basis points next week. If the same pattern continues, BTC will drop below $70,000 on December 19. Adjust your positions accordingly.'
Thus, this week, analysts see the Bank of Japan as the biggest threat to Bitcoin prices. The possibility of $70,000 is on the agenda.
Similar analyses are emerging in many crypto-focused accounts. In a scenario like the past, a potential drop below $70,000 is highlighted. This also implies a 20% pullback from current levels.
Still, not everyone sees the BOJ's interest rate hike as a definitive signal of a downturn. There is an alternative macro narrative: If the U.S. Federal Reserve (Fed) cuts interest rates while Japan tightens, this scenario could lead to bullish outcomes for the cryptocurrency market.
Macro analyst Quantum Ascend describes the current situation not as a liquidity shock but as 'the beginning of a new era'.
According to this perspective, the Fed's interest rate cuts would increase dollar liquidity, leading to a weakening of the dollar, while the Bank of Japan's (BOJ) gradual interest rate hikes would strengthen the yen without significantly reducing global liquidity.
According to Quantum Ascend, the result is as follows: Capital is shifting towards risky assets that offer asymmetric return potential, meaning cryptocurrencies are experiencing their 'golden era'.
Nonetheless, conditions remain quite fragile in the short term. The Great Martis emphasized that the bond markets have nearly forced the BOJ to take action.
The analyst warned: 'This situation could lead to the unwinding of carry trades and chaos in equities.'
The analyst also pointed out that the expanding peak formations seen in leading stock indices and rising bond yields worldwide indicate that the pressure is increasing.
On the other hand, Bitcoin's price movement reflects uncertainty. The leading cryptocurrency has remained largely horizontal in December. Analysts describe this period as quite volatile as the year comes to an end.
In particular, analyst Daan Crypto Trades points to low liquidity and limited stability before the year-end holidays.
Considering the peak signals in equities, rising bond yields, and Bitcoin's historical sensitivity to liquidity shifts originating from Japan, the BOJ's decision appears to be one of the most critical macro catalysts of the year.
So, does this decision pave the way for a new sharp pullback or could it be the beginning of a crypto rally after the market's volatility? The answer may depend more on the response of global liquidity in the coming weeks than on the interest rate hike itself.
