#加密市场观察 The impact of interest rate hikes in Japan on the cryptocurrency market: Will there be a black swan?

The likelihood of the Bank of Japan raising interest rates on December 19, 2025, is very high. The market generally expects the bank to increase rates by 25 basis points to reach 0.75%, with an over 80% probability. A former official at the Bank of Japan predicted that after the initial hike, there could be three more rate increases, and the final rate might reach 1.5%.
The upcoming move by the Bank of Japan (BOJ), at its core, is about withdrawing the "cheap yen" that has supported high-risk assets worldwide for decades, leading to a sharp reevaluation of the market.
To understand its strength, we first need to understand a hidden beast — the carry trade from interest rate differentials in the yen. Over past decades, near-zero interest rates have made Japan almost the cheapest currency for financing globally. Borrowers borrow cheap yen, convert it to dollars, and rush into U.S. stocks, emerging markets, cryptocurrencies, and other high-yield assets. This model is enormous, with some analysts estimating it exceeds $19 trillion.
Main impact pathway: Reversal of cheap money flows
As the Bank of Japan continues to raise rates, this massive financial chain will begin to tighten in reverse, exerting pressure on the cryptocurrency market in several ways:
1. Direct shock: closing carry trade positions and selling
· Increased costs: borrowing yen is no longer free, and profit margins will be reduced.
· Exchange rate shock: rate hike expectations push the yen to appreciate, causing investors to incur losses when converting currencies to repay yen loans.
· Forced liquidation: mounting pressures will lead leveraged institutions to sell high-liquidity assets first to repay loans, often targeting digital assets. Some analyses indicated that Bitcoin, which was near $92,000 in early December 2025, suddenly dropped to $83,800, directly linked to the closure of carry trade positions caused by yen strength.
2. Indirect pressure: shrinking global liquidity and reduced risk appetite
· Liquidity source contraction: markets lose a key source of low-cost financing.
· Capital attraction shift: if Japanese government bond yields continue rising to attractive levels (recently reaching the highest since 2008), this could drive capital back from abroad to Japan, reducing risk appetite in the markets.
· Rising safe-haven sentiment: amid divergent monetary policies — "unified Japanese policy and potential easing in the US" — uncertainty in global markets increases, boosting safe-haven sentiment, especially affecting Bitcoin and other high-volatility assets.
Will there be a black swan?
Most likely, it won't be a "black swan," but tail risks cannot be ignored.
· Market expectations: currently, the market strongly expects the Bank of Japan to raise rates at the December 18-19 meeting, with a 70%-80% probability. The real black swan is an unexpected shock arriving unannounced, but the market is gradually preparing for it.
· Partial handling: the Japanese bond yield curve has seen significant increases since the start of the year, already reflecting market pricing of policy changes.
· True risk: the real danger lies in the hike or its pace deviating from expectations, or happening at the end of the year during a liquidity crunch (like December 19), leading to a series of leveraged collapses.
Market reaction expectations: short-term pain and long-term divergence
According to multiple analyses, the market may respond in three phases:
Short-term (before and after the announcement, several days): intense volatility and downward pressure.
This is when market sentiment is at its most tense. Any aggressive signals exceeding expectations will quickly trigger sell-offs through closing carry trade positions, posing sharp volatility risks, especially in leveraged crypto markets.
Medium-term (weeks to months): market rebalancing.
After the panic selling subsides, the market will reprice according to new liquidity conditions and policy trajectory. Notably, some analyses suggest that political uncertainty may be reduced, as history shows Bitcoin often demonstrates resilience after major financial stress. Additionally, a rising yen reduces the cost for Japanese investors to invest in dollar-denominated digital assets.
Long-term (structural impact): reshaping the global crypto financing landscape.
If the Bank of Japan continues its rate hike cycle, it will deeply influence global capital flows. This could force the crypto market to reduce its reliance on low-cost leverage in a single currency, and a clear regulatory framework in Japan, along with the exploration of the digital yen (CBDC), may attract new institutional funding committed to compliance.
Counter-strategies:
Overall, interest rate hikes in Japan systematically impact the crypto market by exerting pressure on the "macro" liquidity of the global system and testing leverage levels and risk appetite across the entire market.
For investors, instead of predicting the outcome of a single event, it’s better to evaluate their positions:
· Reduce leverage: a fundamental condition to withstand any major economic shock.
· Focus on core assets: during periods of market turmoil, high-liquidity assets like BTC and ETH are more resilient than altcoins.
· Monitor related signals: keep an eye on the USD/JPY pair and Japanese bond yields, as they are early indicators of capital flows.
Every major stress test in the market reveals risks and measures the strength of the story and long-term value. This time is no different.