BOJ Hints at More Rate Hikes as Yen Weakens, Crypto Faces 30% Slide Risk
The Bank of Japan's December meeting minutes reveal Policymakers are seriously contemplating further tinkering with interest rates.
Quick overview
- The Bank of Japan is considering further adjustments to interest rates as the yen hits record lows and remains the lowest among major economies.
- Officials believe that higher interest rates are necessary to manage inflation and currency fluctuations, with forecasts predicting a terminal rate of 1.25-1.50% by 2027.
- The volatility of the yen is impacting the crypto market, with rising borrowing costs potentially leading to unwinding of leveraged positions and increased asset volatility.
- Investors should monitor BOJ meetings closely, as their decisions will significantly influence trading strategies and market dynamics.
The Bank of Japan’s December meeting minutes reveal Policymakers are seriously contemplating further tinkering with interest rates. Yet, despite the yen hitting record lows, Japan is still at the bottom of the league table for real policy rates. Officials noted that Japan’s current real policy rate is still the lowest among the major economies, which has them pretty concerned about the state of monetary conditions.
Deputy board members said that adjusting monetary accommodation is what it takes to calm down inflation and currency fluctuations. While the main interest rate was recently upped to 0.75% its highest level in 30 years – some on the board reckoned that rates are still well below where they should be, especially when you take inflation into account. Economists are forecasting more hikes are on the way, and are predicting a terminal rate of 1.25-1.50% by 2027.
The Yen’s Volatility is Starting to Hit the Crypto Market
The sharp fall of the yen has surprised many Analysts, and it’s coming at a time when the BOJ is trying to normalize interest rates after years of being stuck near zero.
Here are some key things to be aware of for crypto investors:
- Rising borrowing costs may force people to unwind their leveraged yen positions.
- Higher interest rates could reduce risk appetite, increasing volatility in crypto assets.
- Looking back at past trends, we can see that after major BOJ policy changes in 2024 & 2025, Bitcoin usually drops 20-30%
This all goes to show that the link between Japan’s monetary policy and the market is closer than people thought, and that crypto prices are very sensitive to interest rate expectations.
What to Expect from the BOJ & the Markets
Board members said that the way the BOJ times its future rate hikes will have a big impact on how much inflation pressure they can manage and whether they can keep long-term interest rates stable. Economists predict that:
- Short-term – they’re expecting a few more rate hikes in the next six months.
- Medium-term – terminal rate between 1.25-1.50% by 2027.
- Market impact – the yen could fall further still, risk assets will get more volatile, and crypto could suffer too.
Investors will want to keep a close eye on upcoming BOJ meetings, as the signals they send will have a big impact on trading strategies, capital flows, and crypto market dynamics. The BOJ’s dual focus on keeping the currency stable and normalising interest rates won’t be a major driver of the market for a good while yet.
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