Japan's expected rate hike, tightened yen funding to pressure leveraged BTC positions

Japan’s shift toward a higher interest-rate environment is beginning to influence global risk markets, placing Bitcoin in a weakened position as investors brace for the end of three decades of ultra-low funding costs.

The Bank of Japan is expected to raise its benchmark rate to 0.75% at the December policy meeting, the highest level since 1995. The prospect of this change has already strengthened the yen, which moved from above 155 per dollar to roughly 154.56 on Friday.

BOJ tightening shifts funding costs and pressures high-beta markets

Policy makers are inclined to increase by 25 basis points at the December 19 meeting, according to those involved in the deliberations, unless a large shock arises in global or domestic markets.

Governor Kazuo Ueda stated that the board would make an appropriate decision, using the same wording as in previous increases. According to market data, the likelihood of a December move has been reported to be nearly 90%. The shift is expected to be supported by government ministers aligned with Prime Minister Sanae Takaichi, indicating that the tightening agenda will enjoy wider political backing.

The cost of funding also increases, which directly impacts the yen carry trade. The approach enabled hedge funds and proprietary desks to borrow cheaply in yen and invest the funds in more volatile assets.

Bitcoin is one of the markets that has been most susceptible to changes in leverage and liquidity, and is therefore susceptible as investors reposition themselves to the increased cost of borrowing. The strengthening of the yen is in line with the de-risking of macro portfolios, which could constrain the liquidity environment that has helped Bitcoin recover from intramonth lows.

This tension was evident in the price of Bitcoin earlier in the week, which fell to around $86,000 before rising to around $89,000, in tandem with U.S. equities. Its motions have been pegged to fluctuating global rate expectations in what has been a tumultuous month in the rotation of macro-linked assets.

Japan aligns tax policy and investment rules with broader market reforms

This policy change coincides with Japan’s planned redesign of its cryptocurrency tax regime, which is set to shift to a flat tax of 20% on gains from trading, effective in 2026. The tax would be equivalent to those levied on equities and investment trusts, and crypto would be the same as any other financial instrument.

According to the proposal, crypto earnings would be a distinct tax bracket between both national and local governments.

Currently, the income from digital assets is subject to a progressive tax structure, which may exceed 55% of the total income.

Critics argue that such a structure will not promote sales, as it creates a risk of incurring large tax liabilities. The advocates of the intended reform anticipate that the reduced, unified ratio will spur involvement in Japan’s internal crypto market, which saw approximately eight million active accounts and approximately 1.5 trillion yen (around $9.6 billion) of spot exchange in September.

Japanese asset managers have also begun to align with the new regulatory direction. Nomura Asset Management has established an internal task force to assess product strategies, and Daiwa Asset Management is collaborating with Global X Japan to explore potential offerings.

Mitsubishi UFJ Asset Management and Amova Asset Management are renegotiating their custody, pricing, and standards protocols to support more digital-asset exposure to retail and institutional investors.

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