Bitcoin price is in danger amid the Bank of Japan raising interest rates

While the cryptocurrency market eagerly awaits the inauguration of US President-elect Donald Trump on January 20, another important event in the following week could impact the market’s trajectory. Economists point out that the expected interest rate hike by the Bank of Japan (BOJ) may weaken Bitcoin’s bullish momentum.

Will the Bank of Japan play spoiler?

After crashing to $89,256 earlier this week, Bitcoin has recovered some of its losses, trading near the crucial psychological level of $100,000. The leading cryptocurrency is preparing for a potential new chapter under the Trump administration, whose campaign prominently highlighted pro-crypto regulatory policies.

but, optimism The situation surrounding Trump’s presidency may be affected by the Bank of Japan’s potential decision to raise interest rates. According to A table As analyst Michael Cramer said on X, there is a 90% chance that the Bank of Japan will announce a rate hike on January 24.

It is worth noting that in August 2024, an interest rate hike by the Bank of Japan triggered the infamous yen carry trade, sending the price of Bitcoin down to $49,000. A similar scenario could unfold if interest rates are increased again this year.

Higher interest rates typically strengthen the Japanese yen, reducing the appeal of risky assets like Bitcoin. This is because high rates lead to lower liquidity and higher borrowing costs, making speculative investments less attractive to those seeking high risk and high reward.

This dynamic was observed during the US Federal Reserve’s interest rate hike in March 2022, which was aimed at curbing rising inflation but significantly impacted crypto assets.

It is worth noting that since 2016, the Bank of Japan has maintained negative interest rates. However, in 2024, the central bank raised interest rates twice, from -0.1% to 0.25%. Although the expected rate for the next meeting is 0.45%, this may change depending on Japanese inflation data scheduled for release on January 23.

If inflation rates exceed expectations, this could destabilize digital asset markets, raising the possibility of another yen carry trade unwinding. It is worth noting that the headline inflation rate on an annual basis reached 2.9%, the highest level since August 2024.

Bitcoin’s reaction is difficult to predict

Although the Bank of Japan’s interest rate hike is seen as bearish for digital assets, including Bitcoin, it is not certain that digital assets will collapse following the interest rate hike announcement.

For example, I held BTC fixed Earlier this month, though, the US Federal Reserve proposed smaller interest rate cuts in 2025 than initially expected. The central bank’s decision to slow interest rate cuts is largely due to sticky inflationary pressures.

However, said crypto entrepreneur Arthur Hayes He predicts These cryptocurrencies may see a “horrific dump” ahead of Trump’s inauguration. At press time, Bitcoin is trading at $98,212, down 1.1% over the past 24 hours.

Featured image from Unsplash.com, charts from X and TradingView.com