Japan's anticipated move towards a higher interest-rate environment is beginning to influence global risk markets, potentially weakening Bitcoin's position as investors prepare for the conclusion of three decades of exceptionally low funding costs.
The Bank of Japan is widely expected to raise its benchmark interest rate to 0.75% at its December policy meeting. This would represent the highest level the rate has reached since 1995. The prospect of this policy change has already contributed to a strengthening of the Japanese yen, which has seen its value rise from above 155 yen per dollar to approximately 154.56 yen per dollar as of Friday.
BOJ Tightening Shifts Funding Costs and Pressures High-Beta Markets
Individuals involved in the Bank of Japan's deliberations suggest that policymakers are inclined to implement a 25-basis-point increase at the upcoming December 19 meeting. This decision is contingent on the absence of significant shocks in either global or domestic markets.
Governor Kazuo Ueda has indicated that the board will make an appropriate decision, employing the same phrasing used in previous rate increases. Market data suggests that the probability of a December rate hike is nearly 90%. This policy shift is anticipated to receive broader political support, with government ministers aligned with Prime Minister Sanae Takaichi indicating their backing for the tightening agenda.
The cost of funding is also expected to rise, which will directly affect the yen carry trade. This trading strategy has enabled hedge funds and proprietary trading desks to borrow funds cheaply in yen and subsequently invest them in assets with higher volatility.
Bitcoin is among the markets that have demonstrated significant susceptibility to changes in leverage and liquidity. Consequently, it is vulnerable to shifts as investors adjust their strategies in response to increased borrowing costs. The strengthening of the yen aligns with a broader trend of de-risking in macro portfolios, which could lead to a constrained liquidity environment that has previously supported Bitcoin's recovery from intra-month lows.
This market tension was evident in Bitcoin's price earlier in the week. The cryptocurrency experienced a decline to around $86,000 before recovering to approximately $89,000, moving in tandem with U.S. equities. Bitcoin's price movements have been closely correlated with fluctuating global interest rate expectations, reflecting a period of significant volatility in the rotation of macro-linked assets.
Japan Aligns Tax Policy and Investment Rules with Broader Market Reforms
This upcoming policy change coincides with Japan's planned redesign of its cryptocurrency tax regime. Effective in 2026, the country intends to shift to a flat tax rate of 20% on gains derived from cryptocurrency trading. This rate would be comparable to those applied to equities and investment trusts, effectively treating crypto assets similarly to other financial instruments.
According to the proposal, earnings from cryptocurrency transactions would be subject to a distinct tax bracket, encompassing both national and local government levies.
Currently, income generated from digital assets falls under a progressive tax structure, which can result in tax liabilities exceeding 55% of the total income.
Critics argue that the current tax structure is unlikely to promote sales, as it creates a risk of substantial tax liabilities. Proponents of the proposed reform anticipate that the reduced, unified tax ratio will encourage greater participation in Japan's domestic crypto market. This market saw approximately eight million active accounts and around 1.5 trillion yen (approximately $9.6 billion) in spot exchange volume during September.
Japanese asset management firms have also begun to adapt to the evolving regulatory landscape. Nomura Asset Management has established an internal task force to evaluate its product strategies, while Daiwa Asset Management is collaborating with Global X Japan to explore potential new offerings.
Mitsubishi UFJ Asset Management and Amova Asset Management are currently renegotiating their custody, pricing, and standards protocols to better accommodate increased digital asset exposure for both retail and institutional investors.