As the yen continues to weaken worldwide, the Bank of Japan has hinted at the possibility of interest rate cuts in January 2026.
The yen is trading at around 156 yen to the dollar, raising import costs and increasing domestic inflationary pressures.
The Bank of Japan's policy actions in the past have caused sharp fluctuations in Bitcoin, historically sometimes causing declines of 20-25%.
Japan's central bank, the Bank of Japan (BOJ), has indicated that further interest rate cuts are expected in January 2026, even as the yen continues to weaken sharply against the US dollar.
The move has raised concerns about how global markets in general will react, particularly Bitcoin and the broader crypto market.
Bank of Japan hints at further rate cuts in January
For years, the Bank of Japan (BOJ) has maintained ultra-easy policy to support economic growth even as other central banks have raised interest rates. Japan fell far behind.
Now things are starting to change. On December 19, 2025, the Bank of Japan raised its policy interest rate by 25 basis points to 0.75%, the highest level in about 30 years. The move signaled a shift away from a long period of ultra-low interest rates.
Bank of Japan officials said Japan's interest rates remain very low compared to other countries. They pointed out that low interest rates have led to a weaker yen, pushing up inflation. Therefore, some experts predict that interest rates are likely to reach another 1.25-1.50% by 2027.
Despite this view, Polymarket data shows there is a 97% chance that interest rates will remain unchanged in January, while only 2% expect a 0.25% cut, indicating uncertainty about the Bank of Japan's next steps.
Japanese yen continues to weaken
After the interest rate cut in December, the Japanese yen has continued to decline against the US dollar and is currently trading at around 156 yen to the dollar.
Japan has raised its interest rate to 0.75%, which is still well below the U.S. rate of about 3.75%. This gap drives investors towards the dollar in search of better returns.
The weaker yen has raised import costs and increased inflationary pressures, showing that Japan's monetary policy remains accommodative compared to other major economies.
How will Bitcoin and virtual currencies react?
Historically, the Bank of Japan's interest rate hikes have affected Bitcoin and other risk assets. According to previous market data, Bitcoin has fluctuated sharply following previous Bank of Japan policy decisions, dropping by 20-25% after some interest rate hikes.
This pattern was seen again recently. When the Bank of Japan made its latest rate cut earlier this month, Bitcoin fell nearly 5% in one day to about $88,000.
Nevertheless, many traders pointed out that expectations for rate hikes are already 98% priced in, limiting further volatility.
However, accommodative monetary policy often encourages investors to look for assets that can protect value. During times like these, Bitcoin often acts as a hedge against currency weakness.
