Bank of Japan Rate Hike Fails To Rattle Crypto Markets Like the Last Time

• Bank of Japan raises rates by 25 bps, its first hike in six months, meeting market expectations.
• Unlike previous hikes, the move didn’t disrupt financial or crypto markets.
• Trump’s pro-crypto executive orders may have softened the potential fallout from the rate hike.

The Bank of Japan (BoJ) raised its benchmark interest rate by 25 basis points (bps), marking its largest hike since February 2007 and aligning with market expectations.

This move comes as Japan faces persistent inflationary pressures, with core CPI climbing 3% year-over-year in December—the first increase in 16 months.

The hike signals a shift in the BoJ’s approach to monetary tightening after years of ultra-loose policies. Analysts suggest this move reflects optimism about stable inflation and wage growth.

Why the BoJ Pulled the Trigger

Two main factors influenced BoJ’s decision.

Firstly, Japan’s inflation metrics have steadily climbed, with core CPI showing a 3% year-on-year increase in December.

Factors such as labor shortages, restrictive immigration policies, and a projected 5% wage growth by 2025 further support the central bank’s hawkish stance.

Secondly, President Donald Trump’s absence of immediate, aggressive trade protectionist measures has created a favorable environment for the BoJ to normalize policy without destabilizing yen-denominated assets.

Market Reactions: Controlled Volatility

The rate hike had a muted impact on markets compared to previous actions by the BoJ.

While the yen initially strengthened, dropping the USD/JPY by 50 bps, traders had largely priced the news, preventing significant volatility.

Dilin Wu, a research strategist at Pepperstone, explained, “The market had almost fully priced in 25 bps hike.”

“The BoJ’s guidance on the future path of interest rates will play a more decisive role in determining the strength of the yen,” Wu added.

The Pepperstone research strategist asserted that BoJ Governor Kazuo Ueda is expected to emphasize that the tightening cycle is far from over. However, he is likely to avoid committing to a rigid timeline to maintain policy flexibility.

“Traders will be closely watching Ueda’s comments on the pace of future rate hikes, the current weakness of the yen, and his views on the US economic and political outlook,” Wu noted.

Crypto Market Shrugs Off BoJ’s Hike

Unlike past rate hikes, the crypto market showed remarkable resilience. Bitcoin (BTC) remained steady during the Asian session, hovering near $104,000.

This is a stark contrast to the fallout from the BoJ’s last significant rate action in August 2024, which triggered a global sell-off.

At the time, unwinding “carry trades” sent Japan’s stock market plunging 12%, its worst day in 37 years. Investors sold U.S. assets to repay yen loans, dragging down tech stocks like Apple, Nvidia, and Intel by 7-9%.

The crypto market wasn’t spared either, with Bitcoin and Ethereum (ETH) seeing double-digit losses and altcoins like Solana (SOL) and Dogecoin (DOGE) dropping by up to 30%. The carnage wiped out $600 billion in market cap and caused $1.14 billion in liquidations.

This time, however, the crypto market remained calm. Analysts point to policy developments under the Trump administration as a stabilizing factor.

Trump’s Crypto Orders Provide a Buffer

President Trump’s recently signed executive order, aimed at making the U.S. a global crypto leader, may have dampened the potential turbulence from the BoJ’s rate hike.

The order introduced a crypto working group to draft comprehensive regulations while rejecting central bank digital currencies (CBDCs), which Trump labeled threats to financial stability and privacy.

It also proposed the creation of a national crypto stockpile derived from seized digital assets.

Crypto advocates praised the administration’s forward-thinking approach, with many suggesting it provided reassurance to the market amid the BoJ’s tightening measures.