The Bank of Japan (BOJ) is preparing to raise its policy rate to 0.75% at its December 18-19 meeting, a 25-basis-point increase from the current 0.5%. This move would mark the first hike since January 2025 and push borrowing costs to their highest level since 1995, signaling a decisive shift away from decades of ultra-loose monetary policy.
The decision, expected to gain majority support from the BOJ's nine-member Policy Board, comes as Japan's 10-year government bond yields have surged to 1.94%, the highest since mid-2007. Governor Kazuo Ueda has been open about the tightening direction, with Prime Minister Sanae Takaichi's government showing increasing support for the move. The policy pivot has already tightened global financial conditions, reducing tolerance for the leverage that previously supported market rallies.
The crypto market has felt immediate pressure. Bitcoin traded around $86,000 in early December after a sharp 5% single-session drop that briefly pushed it below $85,000, triggering over $637 million in long liquidations. The Crypto Fear and Greed Index plunged to extreme fear levels near 20. Bitcoin saw approximately $251.69 million liquidated in a 24-hour period, while Ethereum followed with roughly $111.31 million.
Ignacio Aguirre, CMO at Bitget, explained the mechanism: a stronger yen "raises the risk of unwinding yen carry trades which is a move that can temporarily weigh on crypto valuations as leveraged positions reset across global markets." The selloff in Japanese Government Bonds (JGBs) has rippled globally, pushing 10-year U.S. Treasury yields up to about 4.08%. Crypto-exposed stocks like MicroStrategy, Coinbase, and Robinhood also declined.
Concurrently, Japan is undergoing a significant regulatory overhaul. The Financial Services Agency (FSA) is moving crypto regulation from the Payment Services Act into the Financial Instruments and Exchange Act, treating digital assets more like traditional securities. This includes stricter disclosure rules, an insider trading ban, and enhanced exchange oversight. The government is also preparing to introduce a flat 20% tax on crypto trading gains in 2026, replacing progressive rates that could reach 55%.
Amidst the tightening, Japan's stablecoin sector is emerging as a new dynamic. JPYC, the issuer of Japan's first licensed yen-pegged stablecoin, targets circulation of 10 trillion yen within three years and plans to invest 80% of its proceeds in JGBs, potentially filling the gap left by the BOJ's retreat from bond purchases. The FSA has endorsed a pilot with Japan's three largest banks to develop a shared framework for issuing yen-backed stablecoins.
Despite near-term volatility, some analysts remain bullish on the long-term outlook. Aguirre expects Bitcoin to "retest the $95,000–$100,000 range by early 2026, while ETH could climb toward $3,800 as institutional flows resume and macro conditions stabilize." Major financial institutions like Nomura Asset Management and Daiwa Asset Management are forming task forces to prepare product strategies ahead of the regulatory changes.
