Japan's interest rate hike is poised to put Bitcoin in a vulnerable position, as investors prepare for the end of three decades of ultra-low funding costs.
Forecasts suggest that the Bank of Japan will raise the benchmark interest rate to 0.75% at its policy meeting in December, marking the highest level since 1995. This anticipated policy shift has already led to an appreciation of the yen, adjusting from above 155 yen per dollar last week to about 154.56 yen.
Impact of Japan's Rate Hike on Volatile Markets
Experts involved in policy discussions indicate that policymakers are inclined to raise rates by 25 basis points at the meeting on December 19, provided no significant shocks occur in global or domestic markets. Bank of Japan Governor Kazuo Ueda stated that the board would reaffirm previous expressions of rate increases and make appropriate decisions. Market data shows that the likelihood of a hike in December is nearing 90%. Furthermore, support from Prime Minister Fumio Kishida's government for tightening measures indicates broader political backing for this policy.
The rising cost of capital will directly impact yen carry trades. This strategy allows hedge funds and proprietary trading desks to borrow funds cheaply in yen and invest in more volatile assets.
Bitcoin is one of the markets most affected by changes in leverage and liquidity. As borrowing costs rise, Bitcoin's price is also impacted. The strengthening yen aligns with a macro risk-reduction strategy, which could limit the liquidity environment that supports Bitcoin's recovery from monthly lows.
Recently, Bitcoin's price dipped to around $86,000, then rebounded in sync with the U.S. stock market to above $90,000, with its price volatility reflecting shifts in macro assets.
Japan's Tax System and Investment Rules Adjustment
This policy shift coincides with Japan's plan to restructure its cryptocurrency tax system. The new tax regime will impose a flat tax rate of 20% on trading gains starting in 2026, aligning with the rates for stocks and investment trusts, treating cryptocurrencies equally with other financial instruments.
According to the proposal, cryptocurrency gains will become an independent tax category between national and local governments. Currently, income from digital assets is taxed under a progressive tax system, with rates potentially exceeding 55%.
Critics argue that this tax structure will not promote sales, as it imposes a significant tax burden on investors. However, reform advocates expect this unified lower tax rate to encourage greater participation in Japan's internal cryptocurrency market, which had approximately 8 million active accounts in September, with a spot trading volume of about 1.5 trillion yen (around $9.6 billion).
Japanese asset management firms are also making adjustments. Nomura Asset Management has established an internal working group to assess product strategies, while Daiwa Asset Management is collaborating with Global X Japan to explore potential new products.
Mitsubishi UFJ Asset Management and Amova Asset Management are renegotiating their custody, pricing, and standard agreements to support increased exposure of retail and institutional investors to digital assets.
