Bitcoin Braces for 30% Plunge as Japan’s Rate Hike Looms

Japan's central bank shifts gears—and crypto markets shudder. The specter of rising interest rates in the world's third-largest economy is sending shockwaves through digital asset portfolios, with analysts flagging a potential 30% downside for Bitcoin.

The Liquidity Squeeze

Tighter monetary policy doesn't just make yen more expensive—it pulls the plug on the cheap capital that has fueled risk assets for years. Bitcoin, often the first to feel the chill, faces a classic flight to safety. Investors are recalculating the risk-reward of holding volatile crypto when government bonds start paying real yields again. It's the oldest story in finance: when the free money stops, the party gets quiet.

A Global Domino Effect

This isn't just a Tokyo story. A hawkish turn from the Bank of Japan pressures other major central banks and reshuffles global capital flows. The carry trade unwinds, leverage gets costly, and suddenly, that 'digital gold' narrative gets tested against the real thing. Every basis point hike is a reminder that in traditional finance, they still call the shots—much to the chagrin of crypto maximalists.

Navigating the New Regime

For the savvy practitioner, this is a volatility playbook, not a death knell. Corrections shake out weak hands and create structural buying opportunities. The underlying adoption thesis for Bitcoin remains untangled from any single nation's interest rate policy. History shows that after the initial panic, the market digests the news and finds a new equilibrium. Sometimes, you need a little fear to remind everyone what real conviction looks like.

So watch the charts, but ignore the herd. While Wall Street analysts dust off their 'I told you so' memos, the real move is planning for the rebound. After all, the last time finance got cynical about Bitcoin, it quietly doubled.

Prediction markets vote for an expensive yen

Prediction markets are bearish. On Polymarket, 98% of users voted that a 25 bps increase will likely happen. The remaining 2% of voters think the BOJ will not change the current rate.

Less than 1% believe that the BOJ will bump interest rates by 50%.

If the rate hikes are imposed, Japan’s total policy rate would hit 75 basis points. The last time the policy rate exceeded 0.5% was in September 1995.

An interest rate of 0.75% is considered low compared to the US Federal Reserve’s rate of 3.50%–3.75% and the European Central Bank’s rate of around 2.00%. However, a 0.75% interest rate is a major change in Japan because the country has spent decades with near-zero or negative interest rates.

The yen could take Bitcoin down

For years, Japan was the source of cheap borrowing, and this created an investment strategy called the “yen carry trade.” Investors borrow the Japanese yen at low rates and convert it into dollars, euros, or other currencies.

Then they invest in stocks, bonds, crypto, or higher-yield assets and pocket the difference between borrowing costs and investment returns.

The carry trade is now under threat. If Japanese interest rates rise, borrowing the yen becomes more expensive.

The profit margin on the carry trade would shrink. The risk of yen appreciation increases, which can amplify losses. To repay yen loans, investors may need to sell volatile assets like Bitcoin.

Analysts believe that bitcoin could drop to $70,000, and historical data lends support to that view.

In March of 2024, Bitcoin dipped by 23% after Japan hiked rates by 10 basis points, ending its negative interest rate policy.

In July of 2024, BTC was down nearly 30% after the BOJ raised rates by 25 basis points, taking its policy rate to around 0.25%.

The last time this scenario happened was in January 2025, when BTC tanked by 31% after the BOJ once again hiked rates by 25 basis points.

In each case, Bitcoin’s declines played out over multiple weeks. Markets slowly repriced global liquidity after BOJ rate hikes, preventing an immediate panic-driven selloff.

But the January BTC selloff was quick because markets were more sensitive to the JPY’s value. This time, it is unclear how long a BTC selloff would take to materialize. It could unfold over days or weeks.

Analysts are advising investors to prepare for volatility. The week will feature several major events in the United States, including unemployment data and non-farm payrolls on Tuesday.

On Thursday, U.S. consumer price index (CPI) data and initial jobless claims are scheduled for release. In Europe, markets will be watching the European Central Bank’s rate decision.

Finally, the Bank of Japan is set to announce its rate decision on Friday.

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