At its policy meeting in December, the Bank of Japan is getting ready to raise interest rates. This move would bring the nation's benchmark rate to its highest level since 1995 and might have an impact on global risk markets, including cryptocurrency.
Policymakers are leaning toward a 25-basis-point raise to 0.75% at the meeting on December 19, according to people familiar with the situation who spoke to Bloomberg. However, this is dependent on the absence of a significant shock to international markets or Japan's domestic outlook.
Following the announcement, the value of the yen increased, rising from little over 155 to roughly 154.56 per dollar on Friday. One of the oldest macro links in the financial world, the yen-funded carry trade, is affected by these implications.
In order to finance leveraged positions in higher-beta assets, hedge funds and proprietary trading desks have historically borrowed yen at extremely low rates. This arrangement has endured for almost thirty years of almost zero BOJ policy.
In markets where leverage and liquidity are most sensitive, like as bitcoin, a move toward higher Japanese rates makes that trade less appealing and can necessitate strategy changes.
De-risking across macro portfolios is usually correlated with a stronger yen, and this dynamic may tighten liquidity conditions, which have recently aided bitcoin's recovery from its November lows.
After a month of macro-driven volatility, BTC fell around $86,000 earlier in the week before rising to above $93,000 alongside U.S. equities. Global rate expectations continue to have a significant impact on BTC.
Similar to statements made before to previous rate increases, Governor Kazuo Ueda hinted on Monday that the board will make a "appropriate decision" on rates.
There is currently a nearly 90% chance of a December move based on market pricing. Key ministers of Prime Minister Sanae Takaichi are not anticipated to be against the change.
Although they are still hesitant to commit to a course, BOJ officials are also likely to signal that they are prepared for additional tightening if their prognosis comes to pass.
The directional break from a decades-long source of global liquidity poses a greater risk to bitcoin traders than Japan's terminal rate.
Leveraged macro funds may reduce their exposure to Bitcoin and other high-volatility assets if yen funding costs keep rising. However, given the increasing likelihood of a U.S. rate decrease, a gradual, controlled tightening by the BOJ without significant equity drawdowns may have little effect in the near future.
