Bank of Japan’s 25 Bps Rate Hike to Cascade a Crypto Sell-off

• Polymarket odds show a roughly 98% chance of BOJ’s interest rate increase
• The expected rate hike is a big step in Governor Kazuo Ueda’s plan to move Japan away from its long period of near-zero interest rates
• Historically, when the BOJ has raised interest rates in the past, Bitcoin and similar risky investments have often dropped sharply, between 20% and 30%

The Bank of Japan (BOJ) is widely expected to raise its key policy interest rate by 25 basis points (0.25%), lifting the benchmark rate from 0.50% to 0.75% at its December 18-19 policy meeting. This would be Japan’s highest rate in 30 years, and the traders are rather confident it will happen, with Polymarket odds showing a roughly 98% chance of an increase.

This expected rate hike is a big step in Governor Kazuo Ueda’s plan to move Japan away from its long period of near-zero interest rates. 

The inflation has stubbornly stayed above the bank’s 2% goal. A recent business survey (TANKAN) showed company confidence at a four-year high, giving the central bank more reason to tighten policy.

While 0.75% might look like a low interest rate globally, the fact that Japan is finally raising rates after years of near-zero is a notable change for the financial markets.

Impact on the crypto industry

Cryptocurrencies like Bitcoin are often seen as risky, growth-oriented investments, and they tend to do well when money is cheap and easy to borrow. A rate hike from the Bank of Japan signals that borrowing money could become more expensive and less capital might flow into speculative markets like crypto.

For years, Japan was a go-to place for cheap loans as the traders would borrow yen at very low rates, swap it for other currencies, and use that money to buy things like stocks, bonds, or crypto. When Japan raises its rates, that cheap loan gets more expensive, which can force traders to sell their riskier investments to pay back the borrowed yen.

Historically, when the BOJ has raised interest rates in the past, Bitcoin and similar risky investments have often dropped sharply, between 20% and 30%. Considering that Bitcoin’s current price is hovering around $88,000, this means that the price could drop to $70,000 if similar patterns repeat.

Still, while a BOJ rate hike makes crypto markets riskier in the short term, it doesn’t mean a crash is certain. There are always other important factors that drive crypto prices, separate from interest rate moves.

Related: Bank of Japan Set to Hike Rates 25 Basis Points, Bitcoin Likely to Face Selling Pressure