The Bank of Japan (BOJ) is signaling a potential interest rate cut in January 2026, a move that has raised significant concerns about volatility in global markets, particularly for Bitcoin and the wider cryptocurrency sector. This comes despite the Japanese yen continuing to weaken sharply against the U.S. dollar, trading near ¥156.
This potential policy shift follows a historic move on December 19, 2025, when the BOJ raised its policy rate by 25 basis points to 0.75%, marking the highest level in nearly 30 years and signaling a departure from its long-standing ultra-easy monetary stance. BOJ officials acknowledged that Japan's interest rates remain very low compared to other major economies, a factor that has contributed to yen weakness and higher inflation.
Internal discussions reveal the challenges the central bank faces. During a recent two-day board meeting, members highlighted that Japan's real policy interest rate is currently the lowest in the world, with a "significant distance" remaining to reach a neutral rate, which a BOJ study estimates lies within a wide range of 1% to 2.5%. Governor Kazuo Ueda admitted the difficulty in determining this neutral level. Some members advocated for a flexible approach to policy decisions rather than focusing on a specific target.
Market reactions to BOJ policy have been pronounced. Following the December rate hike, Bitcoin fell nearly 5% in a single day to around $88,000, echoing historical patterns where BOJ moves have triggered sharp swings in risky assets, with Bitcoin sometimes dropping 20–25%. However, traders noted that the latest hike was largely anticipated, with a 98% expectation already priced in, which limited further volatility.
The political landscape adds another layer of complexity. Prime Minister Sanae Takaichi, who once called rate hikes "stupid," has refrained from criticizing Governor Ueda's plans since taking office in October 2025, instead focusing on inflation concerns. Economists, like Ryutaro Kono of BNP Paribas, predict a cautious tightening path of about one hike every six months, but warn that the risk of the BOJ needing to accelerate due to currency changes "is not small." This uncertainty is reflected in prediction markets, with Polymarket data showing a 97% chance of no rate change in January against a mere 2% expecting a cut.
