-
Polymarket odds indicate that BOJ will increase interest rates
-
The rate hike is expected to be a major step in Governor Kazuo ueda’s plans to move Japan from its long period with interest rates near zero
-
In the past, when the BOJ raised interest rates, Bitcoin and other risky investments often fell sharply between 20% and 30%
At its policy meeting on December 18-19, the Bank of Japan is widely expected by most to increase its key policy rate by 25 basis point (0.25%), bringing it from 0.50% up to 0.75%. The rate would be the highest in Japan for 30 years. Polymarket odds show a 98% chance that it will happen.
This rate hike is an important step in Governor Kazuo’s plan to get Japan out of its long period with interest rates near zero.
The inflation rate has remained stubbornly above the bank’s target of 2%. Recent business survey (TANKAN), which showed a four-year-high in company confidence, gave the central bank a reason to tighten policies.
While 0.75% may seem like a low rate of interest globally, the fact Japan is finally increasing rates after years near zero is a significant change for the financial market.
Impact on the crypto industry
Cryptocurrencies, like Bitcoin, are often viewed as high-risk, growth-oriented investments. They tend to perform well when money is easy to borrow and cheap. A rate increase from the Bank of Japan could mean that borrowing money will become more expensive, and less capital may flow into speculative market like crypto.
Japan was the go-to country for cheap loans for years. Traders would borrow yen for very low rates and then swap it for other currencies. They used that money to purchase things like bonds, stocks, or crypto. When Japan increases its rates, the cheap loan becomes more expensive. This can force traders to sell riskier investments in order to pay back their borrowed yen.
When the BOJ raised interest rates, Bitcoin and other risky investments often fell sharply between 20% and 30%. Bitcoin’s price, which is currently hovering around $88,000 could fall to $70,000 in the future if similar patterns are repeated.
While a BOJ rate increase makes crypto markets more risky in the short-term, it does not mean that a crash is inevitable. Interest rate changes are not the only factor that drives crypto prices.
Related: Bank of Japan to Increase Rates by 25 Basis Points and Bitcoin likely to face selling pressure
