BOJ Officials’ Rate-Hike Calls Lift Yen, Pressure Bitcoin and XRP

The Bank of Japan is continuing to unwind its ultra-loose monetary policy. Higher interest rates could strengthen the yen and force investors to unwind carry trades funded with low-cost yen and invested in risk assets such as Bitcoin. If those liquidations gather pace, funds could exit the cryptocurrency market at the same time, making the BOJ's decision a key near-term risk indicator for Bitcoin.

Markets are focused on the Bank of Japan's policy decision on Tuesday, July 21, with interest rates expected to rise to 1%, a 31-year high. Meanwhile, short positions in the yen have climbed to a nine-year high, increasing the risk of a short squeeze and carry-trade unwinding. Although Bitcoin has previously rebounded following rate-hike news, traders warn that a rapid appreciation of the yen could renew selling pressure and push the cryptocurrency toward $60,000.

The Bank of Japan raised its policy rate to a 31-year high, affecting yen funding costs and global risk assets. Markets had feared the increase could unwind carry trades and weigh on cryptocurrencies. Instead, Bitcoin and major altcoins strengthened, pointing to a recovery in investor risk appetite.

At the time of reporting, Bitcoin had climbed above $66,500, gaining about 1.5% over 24 hours. Altcoins posted stronger advances, with Stellar (XLM), Injective (INJ) and Uniswap (UNI) rising between 13% and 16% over the same period and significantly outperforming Bitcoin.

The Bank of Japan’s interest-rate policy affects yen liquidity and the pricing of global risk assets. It could also influence carry trades financed with low-cost yen. Bitcoin is highly sensitive to funding costs and market risk appetite, so a shift toward tighter BOJ policy could prompt investors to reduce their cryptocurrency exposure and amplify price swings.

The Bank of Japan is expected to announce its latest rate decision on June 16, and traders are assessing whether a policy change could trigger another Bitcoin correction. Historical data show that Bitcoin has fallen by an average of about 22.4% after each BOJ rate increase since 2024, making the meeting a key risk event for the cryptocurrency market.

The Bank of Japan kept its policy rate at 0.75%, but the Iran war’s impact on oil prices and a weakening yen prompted markets to reassess the case for a rate increase. Low Japanese interest rates have long supported carry trades, and a concentrated unwinding of those positions could hit risk assets such as Bitcoin. A similar episode in August 2024 sent Bitcoin down about 20%.

Markets at one point pushed the probability of a Bank of Japan rate hike in April to 60%, putting investors on alert for a repeat of the sharp volatility seen in August 2024. The latest reports indicate that the central bank has signaled an effort to cool rate-hike expectations and that some of the risk is already priced in. However, further deterioration in oil prices, the yen or the conflict in the Middle East could still trigger adjustments to carry-trade positions.