How Could Japan’s Interest Rate Hike Affect the Crypto Market?

The Bank of Japan drew attention by raising its interest rate to its highest level in 31 years. The decision, made at a meeting on September 18th, increased the rate to 1.25%. This increase is seen as a result of pressure exerted on Japan by US Treasury Secretary Scott Bessent, who argued that Japan needed to adopt a tighter monetary policy to address the imbalances created by its weak yen.

US Influence and the Background of the Decision

The decision to raise interest rates was the result of private discussions Bessent held with Japanese officials, starting in May 2026. Bessent stated that Japan’s Abenomics-era reflation policies were no longer effective and emphasized the need for monetary policy tightening.

Japan also publicly expressed these views at the G20 meeting at the end of August. This was Japan’s sixth interest rate hike in the current tightening cycle, following a 1.00% increase in June.

Potential Impacts on Cryptocurrency Markets

As the Japanese yen strengthens following the interest rate hike, this could also affect cryptocurrency markets. The strengthening yen may cause investors who borrowed in low-yield yen and invested in high-yield currencies to reassess their positions. The unraveling of such “carry trades” could create selling pressure on Bitcoin and other risky assets, as happened previously in August 2024.

Bank of Japan Governor Kazuo Ueda stated that larger interest rate hikes are possible in the future. This could affect global interest rate expectations and cause fluctuations in cryptocurrency markets. However, the opposition of two members suggests that an acceleration in this direction is not certain.