Japan Increases, America Decreases: Which Central Bank Influences Markets More? | US Crypto News

Welcome to the US Crypto News Morning Briefing—your crucial overview of the day's key developments in cryptocurrency.

Key Takeaways

The US Federal Reserve is cutting interest rates, whereas the Bank of Japan is raising them, creating a rare policy divergence.
Japan’s recent rate hike to 0.75% marks a historical high, pivoting away from a long period of ultra-easy monetary policy.
The effects of Japanese monetary policy may influence global liquidity and cryptocurrency markets more significantly than US rate cuts.
Bitcoin's historical performance suggests potential declines during periods of BOJ rate hikes, while altcoins remain at risk amid tightening liquidity conditions.

Enjoy your coffee, because today’s briefing goes beyond just interest rates. It's about leverage, funding, and exploring which side of the Pacific truly influences risk assets when the central banks diverge. As the United States eases its monetary policy, Japan tightens its approach. This dynamic is beginning to reshape global liquidity in ways that aren't easily captured by charts or price movements.

Current Crypto News: Japan Raises Rates While the Fed Cuts—Which Has Greater Market Impact?

Global markets are caught in a significant and unusual policy divergence. The US Federal Reserve has started to lower interest rates to stimulate growth as it slows down, while the Bank of Japan (BOJ) is increasing rates to levels not witnessed in 30 years.

Investors are now faced with a critical question: rather than debating if these changes are important, they must consider which central bank’s actions will have a more significant effect on global liquidity, currency values, and cryptocurrency markets.

On December 19, the BOJ increased its policy rate by 25 basis points to 0.75%, the highest it has been since 1995. This move signifies another step away from years of ultra-loose monetary policy. Macro analysts interpret this not just as a routine change, but as an essential shift.

🚨 BREAKING: 🇯🇵 BOJ RAISES RATES

The BOJ has increased rates by 25 basis points to 0.75%, marking a peak not seen in three decades.

The era of ultra-easy money in Japan is coming to an end.

This signals a significant global LIQUIDITY transition… keep an eye on the yen and risk assets. 👀 pic.twitter.com/vfciRH84WJ
— Wise Advice (@wiseadvicesumit)

Unlike the Federal Reserve's rate reductions, which are typically cyclical and meant to ease economic slowdowns, Japan's rate hikes represent a structural change. For almost 30 years, Japan's near-zero interest rates served as a crucial source of affordable leverage worldwide.

Now, even small increases can disrupt ingrained funding strategies across global markets, resulting in substantial consequences.

The initial effects were prominently felt in currency markets. Despite the notable increase in rates, the yen initially lost value as Governor Kazuo Ueda offered limited guidance about the future path of tightening. Reuters reported that the currency slipped due to the BOJ remaining "vague on tightening path," highlighting how the market's expectations are shaped not just by the interest hike, but also by forward guidance.

However, analysts argue that the actual transmission mechanism is different: the yen carry trade, as noted in a previous US Crypto News report. As Japanese yields rise and the interest rate gap between the US and Japan narrows, borrowing yen to finance higher-yielding investments becomes more costly.

While the Fed's rate cut occurred, the accompanying message proved more impactful than the reduction itself. The Fed’s updated dot plot now suggests fewer cuts ahead, shifting expectations from a future of "easy money" to a more stable "higher for longer." As expectations for BOJ hikes strengthen the yen, we start to see carry trades unwinding.

This divergence between Tokyo and Washington plays a crucial role:

Crypto markets have historically reacted more swiftly to these changes than traditional assets. Past BOJ tightening cycles have coincided with sharp Bitcoin declines of 20–30% as liquidity contracts and carry trades are unwound.

Is the Bank of Japan a Threat to Bitcoin?

Japan holds the largest amount of US debt. Each time they raise rates, it negatively impacts Bitcoin:

March 2024: -23%
July 2024: -30%
January 2025: -31%

Next hike: December 19
Next move: forthcoming…

If this trend continues, a drop to $70K could be on the horizon. pic.twitter.com/R5916R702I
— Merlijn The Trader (@MerlijnTrader)

This has made Bitcoin's recent stability quite notable. At the time of writing, BTC traded at $88,035, reflecting a nearly 1% increase over the past 24 hours. Bitcoin (BTC) Price Performance. Source: BeInCrypto

“Historically, every previous tightening has led to 20-30% drops in Bitcoin as yen carry trades have unwound and liquidity has tightened. With the hike already factored in, and BTC hovering around $85K–$87K, this may be the dip that buyers have anticipated,” wrote analyst Blueblock.

However, stability at the top of the cryptocurrency market does not eliminate risks in other areas. Altcoins, which are much more vulnerable to shifts in liquidity conditions, could face challenges if Japan continues tightening.

Indeed, BOJ officials have shown readiness to carry on tightening if wage growth and inflation remain robust. Analysts from ING and Bloomberg caution that while more hikes may not happen immediately, the overall trend is clear.

The implications for global markets are striking. While the Fed's rate cuts may provide broad support over time, Japan's withdrawal from an ultra-easy monetary stance directly impacts the foundation of global leverage. If the BOJ follows through on this trajectory, its impact on liquidity, currencies, and cryptocurrencies may soon surpass that of US policies, at least in the near term.

Chart of the Day

Fed Fund Rates vs. BOJ Policy Rate

Chart of the Day

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