BOJ rate hike to 1% could reshape Japan’s position in global crypto markets

The Bank of Japan (BOJ) is expected to increase interest rates to a level that has not been seen since 1995 at its upcoming policy meeting scheduled on June 15-16.

The increase in rates will mark an acceleration of the country’s monetary policy shift, putting further pressure on crypto trading volumes denominated in yen amid rising borrowing costs around the fourth-biggest economy in the world.

For decades, Japan had been among the most active crypto markets in the world, with the change of direction of monetary policy from extreme easing to fighting inflation indicating a turning point for the movement of funds through the exchanges in the country.

The proposed increase of rates from 0.75% to 1%, now seen at a 93% chance by Reuters based on the swaps market, will mark another milestone in a tightening process begun in 2024 following a decade of massive stimulus.

The BTC/JPY is still one of the most active fiat-crypto currency pairs in the whole world, meaning that the monetary policy of the country becomes very important when talking about cryptocurrency trading.

Indeed, as the BOJ increases interest rates, speculative trading based on cheap yen could lose some appeal for traders, potentially weighing on activity across the country’s regulated crypto exchanges.

According to a recent review of Japan’s crypto exchanges, bitFlyer, one of the most heavily regulated and trusted exchanges in the world, was responsible for almost 38% of all crypto transactions made in Japan. This highlights the scale of yen-denominated crypto markets.

Ueda’s absence adds uncertainty at a critical moment

BOJ Governor Kazuo Ueda, 74, was hospitalized on June 10 for treatment of an infected liver cyst and will be absent from the two-day monetary policy meeting.

Deputy Governor Ryozo Himino will chair the meeting. Deputy Governor Shinichi Uchida, who was recently diagnosed with leukemia, will conduct the post-meeting press conference, according to Reuters.

The decision seems pretty much certain. In a recent Reuters survey carried out between June 2-8, 66 out of 70 economists (94%) predicted the rate would hit 1% by the end of June, up from 65% in a May survey. Polymarket probability as of June 11 was 98%, as reported by BlockBeats.

But the communication around future hikes is where things get complicated. Mari Iwashita, executive rates strategist at Nomura Securities, told Reuters that the BOJ may avoid sending clear signals on the future rate path given uncertainty over Ueda’s recovery timeline. “It’s also becoming more unclear on whether the BOJ would hike again this year,” she said.

A monetary policy reversal years in the making

Japan’s central bank spent a decade holding rates at or below zero while flooding markets with bond purchases. That era of cheap yen and negative real interest rates made Japan a favorable environment for crypto speculation and exchange activity.

Japan’s prolonged period of near-zero rates also helped support global carry-trade activity, in which investors borrowed cheap yen to finance purchases of higher-yielding assets. As rates rise, the economics of those trades become less attractive.

Analysts have noted that further BOJ tightening could contribute to deleveraging across risk assets, including cryptocurrencies, particularly if a stronger yen reduces the attractiveness of borrowing in Japan to fund speculative positions elsewhere.

Cryptopolitan has previously reported on how Japan’s monetary policy is taking another direction entirely. The BOJ exited its massive stimulus program in 2024 and has hiked rates multiple times since, driven by wholesale prices rising 4.9% year-over-year in April and an inflation outlook that economists expect will push well above the 2% target later this year, according to Reuters.

The forces driving this shift are compounding. The yen has weakened past 160 per dollar, a level that triggered an estimated 11.7 trillion yen ($73 billion) in currency intervention since late April, Reuters reported.

The Iran war has driven up energy costs for import-dependent Japan. And the U.S. Federal Reserve’s expected hawkish stance under Chair Kevin Warsh has widened the rate differential between Tokyo and Washington. “I interpret the coming rate hike as a defensive measure intended to prevent further yen depreciation,” Shigeto Nagai, head of Japan economics at Oxford Economics, told Reuters.

What happens next is more important than June

According to the Reuters survey, more than 75% of those surveyed expect another hike to 1.25% in the fourth quarter, with two-thirds expecting a rate hike to 1.5% by mid-2027.

Arihiro Nagata, head of global markets at Sumitomo Mitsui Financial Group, said the BOJ should lay out a clear normalization path to stabilize bond markets, where 10-year yields have already hit 30-year highs.

But political risk looms. Prime Minister Sanae Takaichi, a proponent of loose fiscal and monetary policy, holds influence over future BOJ board appointments.

Two hawkish board members see their terms expire in July 2027, giving Takaichi a chance to reshape the board’s balance. “Next year’s personnel shift could overhaul the balance within the board,” said Tsuyoshi Ueno, senior economist at NLI Research Institute. “The BOJ may find it difficult to do anything that could draw the government’s ire.”

As far as the players in the crypto market are concerned, it is no longer about if the BOJ tightens in June, but by how much the process will go.

Japan continues to be one of the largest regulated crypto markets, and changes in the domestic liquidity conditions might affect the movements of BTC/JPY, retail traders, and their leverage trades.

If pressured to ease the tightening process by politics, the BOJ would remain committed to maintaining a deeply negative real interest rate scenario and thus continue fostering an environment where the yen remained artificially cheap.

On the other hand, moving towards 1.5% would mean higher costs of funds for leveraged positions in the country. That would mark the first truly restrictive policy scenario seen in the country in decades.

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