⏰ Meeting time and expectations
The Bank of Japan (BOJ) is holding a two-day monetary policy meeting, which will conclude on December 19, 2025 (Friday). The market widely expects that the central bank will announce a 25 basis point increase in this meeting, raising the policy rate from 0.5% to 0.75%. If this comes true, it will be Japan's first rate hike since January 2025, and the interest rate level will reach the highest point since 1995.
📉 Potential impact on the cryptocurrency market
According to multiple market analyses, the Bank of Japan's interest rate hike primarily impacts risk assets such as cryptocurrencies by influencing global liquidity, and its effects may already be reflected in the market.
1. Core Impact Mechanism: 'Yen Arbitrage Trading' Liquidation.
· What is Arbitrage Trading: Over the past several years, due to extremely low Japanese interest rates, global investors have become accustomed to borrowing low-cost yen to invest in high-yield assets such as U.S. stocks, U.S. bonds, or cryptocurrencies.
· How interest rate hikes impact: A rate hike in Japan will directly increase the borrowing costs of yen, triggering large-scale liquidations of these trades by investors. This process will lead to:
· Capital is flowing out of global risk assets (including cryptocurrencies) and back into Japan.
· Market liquidity is tightening, which may trigger a chain of deleveraging and forced liquidations.
2. Historical Performance: Bitcoin generally declined after the interest rate hike.
Historical data shows that changes in the Bank of Japan's monetary policy correlate with Bitcoin price corrections. In the past few instances of interest rate hikes or strong expectations for hikes, Bitcoin has experienced significant declines.
· After the interest rate hike in March 2024: Bitcoin fell approximately 27%.
· After the interest rate hike in July 2024: Bitcoin fell approximately 30%.
· After the interest rate hike in January 2025: Bitcoin fell again by approximately 30%.
3. Current Market Conditions: May have partially digested expectations.
Due to the highly consistent expectations for this interest rate hike (with market pricing probabilities exceeding 90%), its impact may have already been partially digested by the market before the decision is announced. Recent market reactions include:
· Prices have declined in advance: Bitcoin prices have significantly retreated from early December highs.
· Capital Outflow: The U.S. Bitcoin spot ETF saw a significant single-day net outflow before the meeting, with approximately $350 million net outflow on December 15, indicating that institutional investors may be making defensive adjustments in advance.
🔮 Future Outlook and Key Observations
After the results of this meeting are announced, the market's focus will quickly shift to the Bank of Japan's guidance on future policies.
· Key Risks: Compared to the interest rate hike itself, greater uncertainty lies in the Bank of Japan's statements regarding the monetary policy path for 2026. The central bank has confirmed it will begin selling significant ETF holdings from January 2026; if more interest rate hike signals are released in the future, it may lead to more persistent market pressure.
· Two possible scenarios:
· If the stance is 'dovish': i.e., raising interest rates but suggesting a pause in subsequent actions, the market may rebound due to 'bad news being fully priced in.'
· If the stance is 'hawkish': i.e., suggesting continued rate hikes or accelerated tightening in 2026, it may exacerbate liquidity concerns, leading to further pressure on the cryptocurrency market.
💎 Summary
In summary, the Bank of Japan's interest rate hike, through the transmission mechanism of tightening global liquidity, is a key macro bearish factor suppressing the cryptocurrency market recently. As the market has generally anticipated and reacted, the specific wording after the decision is announced, especially regarding guidance on future interest rate paths, will be crucial in determining the market's short-term direction.
In addition to the Bank of Japan's movements, the Federal Reserve's interest rate cut pace next year, U.S. CPI data, and on-chain selling pressure within the cryptocurrency market also contribute to the current complex market environment.
