Since 2024, Japan has raised interest rates three times. In March 2024, the BOJ ended its negative interest rate policy for the first time, raising the rate from -0.1% to 0-0.1%. This marked the end of Japan's ultra-loose monetary era that lasted for 17 years. In July 2024, the BOJ further raised the rate to 0.25%, triggering severe fluctuations in global stock and cryptocurrency markets. In January 2025, the rate rose to 0.5%, similarly putting pressure on risk asset prices. Currently, market pricing indicates that this interest rate hike is almost a certainty, but its potential impact extends far beyond Japan itself, affecting global liquidity through complex transmission mechanisms, especially in the cryptocurrency market.
The reason Japan's central bank's monetary policy can influence the world is mainly due to the massive scale of yen carry trades. The core of this strategy is that investors borrow low-interest yen and invest in high-yield assets, such as U.S. Treasury bonds, the stock market, or cryptocurrencies. According to data from the Bank for International Settlements (BIS), the global scale of yen carry trades exceeds 1 trillion dollars, with some funds flowing directly into the crypto market. When the BOJ raises interest rates, the cost of borrowing yen increases, leading to yen appreciation (USD/JPY exchange rate declines), forcing investors to close carry positions and sell high-risk assets to repay yen-denominated debt. This can trigger global liquidity tightening, similar to reverse quantitative easing.
Historically, this mechanism has amplified market volatility multiple times. After the interest rate hike in July 2024, the yen appreciated from 160 to below 140 against the dollar, triggering a trillion-dollar global asset sell-off. The crypto market was hit hardest, with Bitcoin plummeting from a high of $65,000 to $50,000, a decline of 26%; the total market value of the crypto market evaporated by $600 billion. These events are not isolated but rather a chain reaction caused by yen appreciation: arbitrage funds withdrew, pushing the VIX (Volatility Index) to soar, amplifying leveraged liquidations.
In the current environment, this impact may be more complex. Although the Federal Reserve has cut interest rates three times in 2025, lowering the federal funds rate to 4.25%-4.5%, providing global liquidity support, the BOJ's reverse tightening may offset some effects. The yield on Japan's 10-year government bonds has risen to 1.95%, far exceeding the expected policy rate, indicating that the market has already priced in the rate hike. However, if the yen further appreciates to below 140, global risk assets will face repricing.
Bitcoin, as a high beta asset, is highly sensitive to changes in liquidity. In 2025, the price of Bitcoin has fallen from a peak of $120,000 to around $90,000, often facing sell-offs in the short term during liquidity tightening.
The market is not afraid of interest rate hikes but rather of uncertainty. The normalization of the Bank of Japan's policy brings clear expectations to the global financing environment, even if leverage will be under pressure in the short term. Yen carry trades have significantly contracted, and volatility means opportunity; Bitcoin often strengthens after policy pressure is released, rather than before. Chaos decreases, and signals strengthen. This appears to be preparing for asymmetric upside risks.
