Bitcoin and the broader crypto market show no signs of panic despite the Bank of Japan’s (BoJ) recent decision to deliver another rate hike.
The Bitcoin bull market has had many scares in the past year, but few stoked as much panic as speculation over the end of the yen carry trade in August 2024 as the Bank of Japan increased interest rates for the second time in 17 years.
For context, at the time, Bitcoin fell 14%, while most altcoins averaged over 20% drops. This historical context makes it hard to blame crypto market participants for panicking ahead of another BoJ rate hike. However, the rate hike has now come and gone without so much as a stutter from Bitcoin and the broader crypto market, begging the question of why.
Par for the Course?
Notably, on Friday, January 25, the Bank of Japan raised interest rates by another 25 basis points to bring the benchmark to 50 basis points, the highest level since 2008.
The BoJ cited sustained inflation and growing wages as reasons for its decision. What’s more, the BoJ has also signaled the possibility of further rate hikes if economic activity continues to rise as expected.
Despite this hawkish stance from Japan’s apex bank, crypto assets appear to be trading slightly higher on the day.
Bitcoin is trading near the $105,000 price point, representing a 2.4% uptick in the past 24 hours, per CoinMarketCap data at the time of writing. Ethereum, XRP, and Solana are also posting 5.5%, 1.4%, and 5.5% gains, respectively.
The market reaction comes as analysts assert that the market had anticipated the BoJ’s 25 bps rate hike. Amit Kukreja is among the market commentators who have shared this view.
“Japan raising rates is not a big deal,” he wrote on Friday, adding, “Yen Short float peaked in July as per CFTC data, everyone knew Japan would hike rates again and began deleveraging.”
By short float, Kukreja refers to the number of yen short positions investors have open as a result of the carry trade. The carry trade is a long-running investment strategy in which investors borrow cheap capital from Japan to invest in high-yield equities in the U.S. and Europe.
However, higher yen borrowing rates have meant that this capital is no longer cheap to borrow, requiring investors to adjust their positions. In August 2024, these adjustments came at a rapid pace as investors were surprised by Japan’s rate hike decision, leading to the resulting market crash.
After scaling the BoJ’s interest rate hike, all eyes are now on next week’s U.S. Federal Open Market Committee meeting. Crypto market investors hope the Fed will take a more dovish tone as December 2024’s core inflation data hinted at cooling inflation.
DisClamier: This content is informational and should not be considered financial advice. The views expressed in this article may include the author's personal opinions and do not reflect The Crypto Basic opinion. Readers are encouraged to do thorough research before making any investment decisions. The Crypto Basic is not responsible for any financial losses.
