The Bank of Japan tightened policy on December 18, raising the policy interest rate to 0.75%, the highest level since 1995.
Governor Kazuo Ueda marked the move as a formal break from the “ultra-easing” regime that has encouraged global risk-taking for decades.
Following this news, Bitcoin remained little changed around $87,800, but the calm surface belies any more serious changes.
Market watchers said the rate hike represents a real test of global funding mechanisms, particularly the yen carry trade, which has quietly funded everything from Nasdaq futures to crypto derivatives.
With this in mind, the risks for traders heading into 2026 are not in this latest document. One possibility is that Japan continues to tighten at the same time as the US Federal Reserve begins to cut interest rates, creating a temporary gap in liquidity between the dollar and the yen.
Pressure on hedging costs
Yen carry trades, in which low-yielding yen is borrowed to buy high-yield assets overseas, remain the main channel through which Japanese government decisions affect Bitcoin.
For many years, that structure has provided a stable, if opaque, bid for risky assets.
Bitunix analysts said: crypto slate This equation will change depending on current market conditions.
Analysts say if Japan continues to raise interest rates while the Federal Reserve cuts them, the gap in interest rates between Japan and the U.S. will narrow, undermining the foundation of the global leveraged economy.
They added:
“This could put rebalancing pressure on carry trades that rely on the yen as a funding currency and trigger a repatriation of capital into Japanese assets, potentially creating a temporary headwind for the US dollar and risk assets.”
However, Bitcoin analyst Fred Krueger argues that the biggest pressure point is not the headline rate but the hedging. He argued that the market often misjudges who is really important in a transaction: Japanese life insurance companies.
According to him, financial institutions such as Nippon Life are not chasing the crypto rally. They correspond to long-term debt. For 20 years, that meant buying U.S. Treasuries because domestic bond yields were almost zero. That framework collapsed when the Fed pushed interest rates above 5%.
Kruger writes:
“When Jerome Powell raised interest rates beyond 5%, the whole system collapsed. Currency hedging costs exploded, completely eradicating yield in yen terms.”
The result is a quiet repositioning rather than a visible liquidation.
With yields on 10-year Japanese government bonds above 2%, local newspapers can finally offer viable returns without currency hedging. Capital that might previously have been parked in hedged U.S. Treasuries or global credits instead remains domestic.
Therefore, once that marginal flow is no longer supplied to Wall Street, the increase in bids for risky assets, including Bitcoin, will weaken.
Warning from the United States
While the macro desk is focused on the bond curve, on-chain and order book data suggests sophisticated US traders are already cooling down.
CryptoQuant data shows US investors sold on the Bank of Japan headline. The Coinbase Premium Gap, or the spread between Coinbase's USD pair and Binance's USDT pair, fell to around -$57 during the US session.
The negative premium indicates that Coinbase, whose trading volume is dominated by US institutional investors, is trading at a discount to offshore venues. This pattern indicates that the portfolio is mitigating risk and increasing strength rather than buying on the spur of the moment.
At the same time, i3Invest CEO Guilherme Tavares sees the combination of Japan's rising yields and Bitcoin's resilience as a warning signal.
he said:
“Liquidity has become very important these days. Japan's long-term yields are so high that risk assets are starting to show signs of weakness.”
He pointed out that the correlation between Japan's 40-year bond and Bitcoin has fallen extremely low recently, suggesting the asset is losing one of its key macro supports.
macro deadlock
Still, Bitcoin has so far refused to fall significantly, staying above $84,000 during the day. BRN Research Director Timothy Michiel said: crypto slate He claimed the conflict was a “macro stalemate.”
Mishir said conflicting signals are keeping the market entrenched. Notably, US headline inflation slowed to 2.7%, giving the Fed room to discuss easing. At the same time, the Bank of Japan is gradually raising interest rates from the zero limit.
For this reason, he pointed out that:
“US data argues for easing. Japan has only tightened. Cryptocurrencies are caught in the middle.”
So he characterized recent price movements as “positioning stress” rather than fundamental capitulation, with traders adjusting their exposures rather than abandoning the asset class.
from a long-term perspective
Despite the relative uncertainty in the market, some veteran observers see the move as a milestone rather than a complete ousting of the regime.
Arthur Hayes, co-founder of BitMEX, argues that the Bank of Japan remains constrained by its own balance sheet and Japan's debt burden.
He noted that despite the hike to 0.75%, the Asian country's inflation rate remains high and real interest rates are in negative territory. Hayes sees this as an intentional feature of policy rather than a coincidence.
“Don't fight with the Bank of Japan. Negative real interest rates are clear policy,” he wrote, predicting a weaker yen and higher Bitcoin prices over time as investors seek protection from currency depreciation.
Since Japanese insurance companies are unlikely to allocate directly to Bitcoin, Hayes' bullish chain is carried out indirectly through the bond market.
But if the Fed retreats from hedged Treasuries because the cost of currency protection becomes too high, as Mr. Krueger suggested, the Fed could eventually have to absorb more supply and keep yields in check.
As a result, new balance sheet expansion aimed at stabilizing sovereign debt will lead to an increase in Bitcoin prices.
