Ahead of the BOJ Interest Rate Decision on December 18, How Will the Crypto Market Respond?

Source: TokocryptoBlog Original Title: Ahead of BOJ Interest Rate Decision December 18, Crypto Market Response? Original Link: https://news.tokocrypto.com/jelang-keputusan-suku-bunga-boj-18-desember-respons-pasar-kripto/ Ahead of the Bank of Japan’s ((BOJ)) key interest rate decision on December 18–19, the crypto market has once again been rocked by a massive liquidation wave worth around US$643 million on December 1.

According to prediction market platform data, market participants now see a 57% chance of a BOJ rate hike at this month’s meeting, after a series of hawkish signals from BOJ Governor Kazuo Ueda. Currently, the BOJ’s benchmark interest rate stands at around 0.5%.

Forced Liquidations Reach US$643 Million

CoinGlass data shows that forced liquidations of crypto positions reached around US$643 million on December 1. During this period, 218,844 traders were affected by this position wipe-out.

Most of those swept out were long positions ((bets on rising prices)) valued at around US$567 million. Meanwhile, short positions ((bets on falling prices)) accounted for only about US$69 million.

Bitcoin was the most impacted asset, with liquidations of about US$186 million, followed by Ethereum at around US$138 million. This pattern indicates that the majority of market participants previously bet on continued crypto price increases when sudden selling pressure hit.

Japanese Bond Yields Highest Since 2008

Market participants are linking this crypto volatility to shifting expectations for Japanese monetary policy. Yields on 10-year Japanese government bonds jumped to around 1.86% on December 1, the highest level since April 2008.

This yield increase reflects market concerns that the BOJ is moving closer to a tighter monetary stance after years of maintaining ultra-loose policy.

In his speech to business leaders in Nagoya on December 1, Governor Kazuo Ueda stated that the BOJ is “actively gathering information on companies’ attitudes toward wage increases” ahead of the December 18–19 meeting. This statement is viewed as a signal that the central bank is open to further tightening if wage and inflation pressures intensify.

The BOJ previously doubled its benchmark rate from 0.25% to 0.5% in January, so a potential December hike would be the second this year.

Yen Carry Trade at Risk

The potential for a Japanese rate hike is also putting pressure on the popular investment strategy known as the yen carry trade. For years, global investors have borrowed yen at very low interest rates to invest in higher-yielding assets, such as US stocks, European bonds, and crypto assets.

If Japanese interest rates rise and the yen strengthens, this strategy becomes less attractive. Investors may be forced to unwind positions financed with yen loans, triggering sell-offs across various asset classes, including crypto.

The USD/JPY exchange rate was around 156.58 on November 21. History shows that when the rate approaches 160 per dollar, Japanese authorities often consider intervening to stem yen weakness. If a BOJ rate hike triggers a further yen rally, pressure to unwind carry trades could increase and spark additional liquidation waves in risky and highly leveraged markets like crypto.

BOJ Rate Hike Odds

In derivatives and prediction markets, participants now see a 25-basis-point BOJ rate hike in December as slightly more likely than no policy change.

After Ueda’s December 1 speech, the probability of a rate hike reflected in the markets rose from about 50% to 57%. On the other hand, the odds of the BOJ keeping rates at 0.5% are estimated at around 40%.

Developments ahead of the BOJ’s December 18–19 meeting have now become a key focus for global market participants. Any new signals regarding Japanese interest rate policy may trigger further volatility, not only in bond and foreign exchange markets, but also in the highly leveraged crypto market.