Isabella García
Bitcoin and U.S. equities exhibited resilience in response to the Bank of Japan’s (BoJ) recent decision to raise its short-term policy rate by 25 basis points (bps) to 0.5%, marking the highest level in 17 years. Unlike the volatility triggered by a similar hike in July 2024, the latest move was met with a more composed market reaction.
This anticipated rate hike, which increased Japan’s benchmark rate from 0.25% to 0.5%, had minimal disruptive impact on risk assets such as Bitcoin and stocks. In early New York trading on Friday, U.S. indices hovered near record highs, while Bitcoin remained steady above $106,000, recording a 2% gain over the past 24 hours.
The Bank of Japan’s July 2024 rate hike blindsided investors, sparking a sharp sell-off across global markets. At the time, Bitcoin plunged from $66,000 to $55,000 within a week, as traders unwound yen carry trades to address increased borrowing costs in Japan. This turmoil erased roughly $6.4 trillion from global stock markets and sent Japan’s Nikkei stock average into its steepest decline since 1987.
In stark contrast, the latest hike has not caused the same level of disruption, reflecting improved market preparedness and a gradual approach by the Bank of Japan.
Why Markets Are More Stable This Time
Analysts credit the muted reaction to expectations being priced in well ahead of the decision.
“This hike was anticipated and aligned with market forecasts,” said Agne Linge, Head of Growth at WeFi, in a statement to PRIME. “Japan still maintains the lowest interest rates globally, and the gap between Japanese and U.S. rates remains wide. This makes it less likely for traders to unwind yen carry trades.”
The yen carry trade, a strategy where traders borrow in Japan’s low-interest environment to invest in higher-yielding assets abroad, can put pressure on risk assets like Bitcoin and equities when Japan’s borrowing costs rise. However, the persistence of favorable rate differentials has reduced the need for drastic repositioning.
Regulatory Tailwinds and Institutional Interest Support Bitcoin
The Trump Administration’s pro-crypto stance has further bolstered market confidence in Bitcoin and other digital assets. Recent regulatory clarity and increased institutional interest have provided a strong foundation for Bitcoin’s price stability.
“The regulatory environment, combined with growing institutional participation, is cushioning Bitcoin against broader market shocks,” Linge added.
Echoing this view, Marcin Kazmierczak, COO of Redstone, emphasized the BoJ’s measured approach as a critical factor in maintaining market stability.
“Unlike last year’s abrupt move, this well-signaled rate hike has allowed traders to adjust their positions in advance,” Kazmierczak explained. “The absence of a panic sell-off highlights how prepared markets are this time around.”
Lessons from the July 2024 Market Shock
The turbulence following the July 2024 rate hike underscored the far-reaching impact of yen carry trades on global markets. With Japan’s rates remaining among the lowest in the world, the strategy continues to exert significant influence.
Friday’s announcement demonstrated that clear communication and a gradual approach can mitigate market shocks. As Bitcoin and equities weather this latest adjustment with minimal volatility, the episode serves as a testament to improved market resilience in the face of monetary policy shifts.
