Emily Walker
The cryptocurrency market is on high alert as it prepares for the inauguration of US president-elect Donald Trump on January 20. However, a significant event the following week could play a crucial role in determining market directions. Economic analysts are warning that the anticipated interest rate hike from the Bank of Japan (BOJ) may overshadow Bitcoin’s recent upward trends.
Will The BOJ Disrupt Market Optimism?
Following a sharp decline to $89,256 recently, Bitcoin has regained some ground, currently trading close to the vital $100,000 mark. The leading cryptocurrency seems ready to embrace a new era under the Trump administration, which has shown strong support for crypto-friendly regulations during its campaign.
Yet, enthusiasm for Trump’s presidency may be dampened by the BOJ’s expected move to increase interest rates. Analyst Michael Kramer on X indicates there’s a 90% chance the BOJ will announce a rate hike on January 24, according to a chart shared by him.
It’s essential to remember that in August 2024, a rate hike from the BOJ set off a significant yen carry trade, which contributed to Bitcoin’s sharp drop to $49,000. A repeat of this situation could occur if another hike happens this year.
Generally, when interest rates rise, the Japanese yen gains strength, making riskier assets like Bitcoin less appealing. This stems from higher rates linked to reduced liquidity and increased borrowing costs, discouraging speculative investments that promise high returns.
This pattern was evident during the US Federal Reserve’s interest rate hikes in March 2022, aimed at controlling soaring inflation but having a significant adverse effect on cryptocurrency values.
Since 2016, the BOJ has kept interest rates negative, but in 2024, it made two adjustments, raising rates from -0.1% to 0.25%. The upcoming meeting anticipates a new rate of 0.45%, subject to change based on the Japanese inflation report set to be released on January 23.
If inflation figures exceed expectations, it could unsettle the digital asset market, raising the chances of another unwinding of the yen carry trade. Currently, year-over-year headline inflation stands at 2.9%, the highest since August 2024.
Uncertain Bitcoin Response
While a BOJ rate hike is likely to be perceived negatively by the digital asset space, including Bitcoin, it’s unclear whether it will lead to a steep decline post-announcement.
For instance, Bitcoin remained stable earlier this month, even after the US Fed hinted at fewer interest rate cuts for 2025 than previously anticipated. The Fed’s cautious approach to reducing rates is mainly due to ongoing inflation issues.
Nevertheless, crypto entrepreneur Arthur Hayes anticipates a ‘severe drop’ in digital assets around the time of Trump’s inauguration. At the time of writing, Bitcoin is priced at $98,212, reflecting a 1.1% decline in the last 24 hours.
