The Bank of Japan (BOJ) is expected to raise its benchmark interest rate for the first time in 11 months, with markets pricing in an 82% probability of a 0.25 percentage point increase to 0.75% when its two-day meeting concludes on Friday, December 19th. This move would push Japanese interest rates to their highest level in three decades. Governor Kazuo Ueda had signaled the hike after holding rates at 0.5% since January, with a pause earlier this year due to U.S. tariff uncertainty.
The decision carries significant implications for global markets, particularly through the mechanism of the "carry trade." For years, investors have borrowed cheap yen at Japan's ultra-low rates to invest in higher-yielding assets like U.S. Treasuries. A BOJ rate hike makes this trade less attractive, potentially leading to capital outflows from U.S. debt markets. The yield spread between 10-year U.S. and Japanese bonds has already narrowed from 3.3 percentage points to 2.2 points over the past year, reducing the incentive.
Crypto analysts are highlighting the potential negative impact on Bitcoin ($BTC). Historical patterns suggest Bitcoin has reacted poorly to previous BOJ rate hikes, as the unwinding of the yen carry trade can reduce global liquidity and risk appetite, factors that have historically influenced crypto asset prices.
Domestic factors are also driving the BOJ's decision. Persistent inflation between August and October, coupled with continued wage growth plans from Japanese companies for 2026, supports the case for tightening. Furthermore, political pressure has mounted on Prime Minister Sanae Takaichi's government to act, as yen weakness has driven up import prices and living costs for households.
In a related monetary policy development, the Bank of England (BoE) is widely expected to cut its interest rate by 0.25% to 3.75% on Thursday, following encouraging UK inflation data which showed CPI falling to 3.2% in November. This contrast in central bank policies—tightening in Japan and easing in the UK—alongside an upcoming U.S. inflation report, is creating complex cross-currents in global forex and capital markets that indirectly affect cryptocurrency valuations.
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