What chain reactions will occur in the cryptocurrency market if Japan raises interest rates?
The ultra-low interest rate policy that the Bank of Japan has maintained for a long time is an important source of global "cheap funds". Once this policy shifts, its impact will far exceed Japan itself, becoming a sword in the global capital market.
Impact on US stocks: This will directly lead to funds flowing out of US stocks, especially for interest rate-sensitive technology growth stocks, where the discount rates in their valuation models will rise significantly, facing a double blow from capital outflow.
Impact on the cryptocurrency market: The cryptocurrency market is a heavy disaster area for high leverage. Once cheap leverage is withdrawn, the market will face deleveraging pressure, liquidity will tighten rapidly, potentially leading to severe price fluctuations or even crashes.
Interest rate hikes in yen usually drive up the value of the yen, creating a "seesaw" effect with the dollar. In the short term, the dollar may weaken relative to the yen, potentially pushing up the prices of cryptocurrencies denominated in dollars. However, this is more like "good news is bad news"; if the market shifts to a risk-averse mode because of this, then a weaker dollar may actually become a reason for selling.
In the face of macro liquidity, cryptocurrencies are not a "decentralized safe haven"; like US stocks, they are also (high-risk) assets.
When the Bank of Japan signals an interest rate hike, rather than closely monitoring the yen exchange rate, it is better to pay close attention to the scale of JPY arbitrage trading closures and changes in US Treasury yields, as they are more reliable indicators of market direction.
