Crypto Faces New Threat as Japan’s Central Bank Signals Potential Rate Hikes

Key Takeaways

• Bank of Japan Governor Kazuo Ueda has suggested another rise in Japan’s interest rates.
• The potential rise in interest rates has sparked concerns about the negative impact on crypto.
• The US Federal Reserve announced plans to reduce interest rates in September.

Bank of Japan Governor Kazuo Ueda said on Tuesday, Sept. 3, that the central bank will continue to raise interest rates if the economy performs as expected by the BOJ. 

The comments, first reported by Bloomberg , have sparked concerns that global cryptocurrencies could suffer another blow if they experience a repeat of last month’s events. 

What Caused August’s Global Market Meltdown?

On Monday, Aug. 5, rising Japanese interest rates, falling tech stocks, and fears of a slowing US economy caused a global market meltdown. 

Japan’s stock market plunged 12% on its worst day in 37 years, and  the dramatic collapse was felt worldwide. 

The widespread fall occurred in part due to a strategy called “carry trade,” in which investors take advantage of Japan’s low interest rates to borrow yen and buy well-performing US equities and bonds. 

After Japan raised its interest rates to combat inflation, a move it hasn’t made since 2007 , investors flocked to sell their US assets to pay back interest on their borrowed yen.

Tech Stock and Crypto Market Majorly Hit

Some of the biggest tech companies saw their stocks plummet; Apple fell 9%, while chip makers Nvidia and Intel fell almost 7%.

The crypto market suffered greatly, facing its biggest single-day drop since 2023. Market leaders Bitcoin and Ethereum suffered double-digit declines, while other altcoins, such as Solana and Dogecoin, experienced falls of up to 30%  in price.

According to CoinGlass , the market flushed nearly $1.14 billion in liquidations, with $857 million in long positions and $281 million in short positions. This sell-off wiped out nearly $600 billion from the market cap .

The BOJ’s suggestion that it may raise interest rates again has caused concern among the crypto community, as it risks the potential of another unwinding of yen carry trades.

Can the US Federal Reserve Counteract the Risk?

Last week, Jerome Powell, Chair of the US Federal Reserve, announced plans to reduce interest rates  in September 2024. This could potentially narrow the interest rate gap and protect from another unwinding of yen carry trades.

Powell claimed “the time has come”  for the Fed to cut interest rates, stating that price growth was now on a “sustainable” path back to normal levels.

The country’s labor market now faces more “downside risks, according to Powell. The unemployment rate in the US rose to 4.3% in July 2024 from 4.1% in the previous month , the highest since October 2021.

About the Author

Kurt Robson

Kurt Robson is a London-based reporter at CCN with a diverse background across several prominent news outlets. Having transitioned into the world of technology journalism several years ago, Kurt has developed a keen fascination with all things AI. Kurt’s reporting blends a passion for innovation with a commitment to delivering insightful, accurate and engaging stories on the cutting edge of technology.

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