The crypto market is bracing for a potential rate hike from the Bank of Japan, which could derail momentum and lead to a selloff in bitcoin prices. As investors await President Trump’s inauguration, they must also contend with the possibility of a higher interest rate, which could have far-reaching consequences for digital asset markets.
Crypto Bulls Brace for Bank of Japan’s Rate Hike That Could Derail Momentum
Most investors are eagerly awaiting President Trump’s inauguration on Jan. 20, which has the potential to be a key catalyst for bitcoin (BTC) and cryptocurrency prices.
However, just a few days later, there is a potential rate hike on the cards from the Bank of Japan (BoJ). According to a Bloomberg chart shared by analyst Michael Kramer on X, the market is currently factoring in a 90% chance of a rate hike on Jan. 24.
The BoJ’s previous rate hike caused significant turmoil on both traditional and digital asset markets. This was a key catalyst for the Yen carry trade unwind at the start of August, which sent bitcoin tumbling to $49,000. Traders are likely bracing for another selloff this time around.
The Bank of Japan has maintained negative interest rates since 2016; however, in 2024, they increased interest rates twice, from -0.1% to 0.25%. The implied rate going into the meeting is 0.45%; however, this could drastically change as Japan has an inflation report just the day before, on Jan. 23.
Inflation Fears and Yen Carry Trade Unwind
Headline inflation year-over-year is at 2.9%, the highest since August. A hotter-than-expected inflation print could create fears within the market, potentially leading to another iteration of the Yen carry trade unwind.
The remarkable strength of the DXY index, currently above 109, the highest level since November 2022, has jumped from 100 from the September low. The DXY index is following a similar trajectory to Donald Trump‘s first presidential term, which saw a rally in the DXY leading into his inauguration and then fell considerably, giving risk assets a much-needed boost.
The Japanese Yen is at its strongest level against the dollar since Dec. 16, at 156.
