The Bank of Japan will conclude its two-day monetary policy meeting on December 19, 2025 (Friday). The market widely expects this meeting to announce a 25 basis point rate hike, with the policy rate rising from 0.5% to 0.75%. Once confirmed, this will not only be Japan's first rate increase since January 2025 but also push the interest rate level to a new high since 1995.

Why is the market so nervous about this news? The key lies in the potential unwind risk of yen carry trades. Over the years, global investors have been playing a classic arbitrage game — borrowing low-cost yen and investing in high-yield assets like US stocks, US bonds, or cryptocurrencies. If the Bank of Japan raises interest rates, the cost of yen borrowing will spike, forcing this game to end. When investors unwind their positions on a large scale, funds will flow out of risk assets and back into Japan.

Historically, this process often coincides with a tightening of global liquidity. Capital outflows, deleveraging, forced liquidations — the cryptocurrency market is hardly immune. Data shows that whenever the Bank of Japan signals or actually implements a rate hike, Bitcoin's price tends to pull back accordingly. This is not a coincidence but a direct reflection of changes in market liquidity. As a typical risk asset, cryptocurrencies are especially sensitive to the global liquidity environment.