#cpiwatch The Bank of Japan is expected to raise interest rates by 25 basis points to 0.75% at its December 19 meeting—the highest level since 1995.
Why This Matters for Bitcoin
Yen carry trade unwinding risk:
A stronger yen typically triggers carry trade exits. Japanese investors and traders who borrowed cheap yen to fund positions in higher-yielding assets (including Bitcoin) would be forced to close those leveraged positions.
Previously, abundant yen liquidity fueled Bitcoin rallies as capital flowed into riskier assets. A rate hike signals potential tightening of that funding source.
Key impacts:
Reduced leverage availability: Japanese yen-denominated loans that funded crypto positions would become more expensive to maintain, forcing liquidations.
Short-term downside pressure: As carry traders unwind, Bitcoin could face selling pressure in the near term.
Volatility spike: Rate decisions from major central banks often coincide with elevated market turbulence as positions shift rapidly.
Risk Management Takeaway
Traders using leverage—especially those borrowing yen or dependent on yen funding—should be extremely cautious. The December 19 BOJ decision could trigger a cascade of position closures, similar to previous carry trade unwinding events.
Monitor yen strength closely in the days leading up to and following the announcement. This is a high-risk period for overleveraged traders.
