Recent signals from the Bank of Japan have been hawkish, suggesting that the cycle of interest rate hikes may be extended, and the final rate could even breach the 0.75% threshold. Once this news broke, global markets became noticeably more nervous. In simple terms, the Bank of Japan has no plans to stop tightening; interest rates will continue to rise, but even they seem to be exploring how high to go.

For the cryptocurrency market, this is no small matter.

Japan has always been a major source of low-interest funds worldwide, especially those arbitrage trades that borrow in low-yield yen and invest in high-yield assets, which are quite substantial in scale. If the Bank of Japan truly extends its rate hike cycle, borrowing costs in yen will gradually increase. As the yen’s attractiveness strengthens, large amounts of global capital may flow back into Japan, effectively siphoning liquidity from the markets.

What’s more concerning is the macroeconomic backdrop. The Federal Reserve has paused interest rate hikes, the European Central Bank is observing, yet the Bank of Japan has started to signal hawkishness. This is essentially warning the market: the era of global low interest rates is gradually coming to an end. This will reinforce market expectations—funds will become more expensive, liquidity will tighten, and this offers little help for high-risk assets like cryptocurrencies.

Another more tricky issue is that the Bank of Japan itself has not yet determined what the neutral interest rate is, implying policy direction remains uncertain. The market will keep guessing and re-pricing, and each time the central bank speaks, it may trigger risk-averse sentiments, leading to increased volatility in global assets, including cryptocurrencies.

Regarding how exactly this impacts the crypto market, the central bank's statements won't directly determine trends but will exert ongoing pressure through three channels: USD/JPY exchange rate fluctuations, changes in global liquidity expectations, and market risk sentiment. If later US economic data also shows strength, and central banks in Europe, America, and Asia start tightening together, the upward momentum could be significantly suppressed.

Some suggestions:

Keep a close eye on the USD index and USD/JPY exchange rate, as these indicators directly reflect capital flow trends. During periods of thin liquidity, avoid high leverage trading, as central bank statements can easily trigger flash crashes. Lastly, remember that under the macro tightening backdrop, cash itself is a position. Maintaining sufficient liquidity reserves is crucial to seize the next opportunity.

This doesn’t mean the bull market is over, but it is definitely a stern test of your resilience and risk management capabilities.