The Bank of Japan raised the key rate by 25 basis points to 0.75% — the highest in almost 30 years. Traditional markets reacted with a rise in Japanese indices, bond yields rose above 2%, and the yen weakened against the dollar.
Participants in the crypto market were prepared for a severe drop because previous decisions by the regulator have often coincided with crashes. But this time, a sharp decline did not happen. The reaction was calm, although tension remains. We have gathered the main information about the decision of the Bank of Japan and its consequences in one review.
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Why is the Bank of Japan's rate important for Bitcoin?
The carry trade plays a key role — a strategy where money is borrowed in a low-interest country and transferred to where yields are higher. For many years, Japan has been a source of cheap borrowing. Investors borrowed capital in yen, converted it to dollars, and directed it to higher-yielding assets, including cryptocurrencies.
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When rates rise:
• cost of borrowing increases;
• carry trade becomes less profitable;
• large investors begin to reduce risk.
At this moment, pressure on Bitcoin and the digital asset market as a whole intensifies.
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There is no panic, but tension remains.
The crypto market did not crash. This likely happened because the rise to 0.75% was already priced in. The focus is now on the future policy of the regulator. Analyst Marty Party notes that investors are closely watching the statements of the head of the Bank of Japan, Kazuo Ueda. If he signals a continuation of tightening, the impact of the current decision will be amplified.
Analyst Quentin Francois emphasizes that past rate hikes in Japan have been accompanied by significant drops in Bitcoin:
• March 2024 — a decrease of about 27%;
• July 2024 — a decrease of about 30%;
• January 2025 — a decrease of almost 30%.
Every time the cost of funding rises, there has been a retreat from risky assets. One should not exclude the risks of history repeating itself.
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The main risk for the market
The most dangerous part is not the regular sales, but the liquidation of leveraged positions. The crypto market is largely built on perpetual contracts and margin trading. When pressure increases and Bitcoin loses important support levels, the following processes occur:
• positions reach the liquidation threshold;
• exchanges begin forced sales;
• a chain reaction begins.
Thus, local pressure turns into an avalanche.
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What signals are currently important for the crypto market?
The market is closely watching several key factors:
• yen exchange rate;
• yield on Japanese bonds;
• changes in open interest on crypto exchanges;
• behavior of key support levels for Bitcoin;
• tone and content of the statements from the Bank of Japan.
Soft rhetoric reduces tension. Strong hints of a new cycle of rate hikes increase pressure.
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Conclusion
The increase in the rate to 0.75% solidified Japan's policy change after many years of ultra-soft conditions. Traditional markets reacted calmly to the decision. The crypto market, despite expectations of a crash, maintained its positions.
The experience of past years reminds us that the tightening of Japanese policy has often coincided with significant drops in Bitcoin. The further development of the situation depends on whether this step will be a one-off or turn into a long-term line of behavior for the regulator.
