Could Bank of Japan crash Bitcoin next week?

0

Last Updated on 25 January 2025 by CryptoTips.eu

The Bank of Japan decided yesterday to raise interest rates again (from 0.25% to 0.50%). That seems counterintuitive (especially if you know that Donald Trump asked central bankers to do the opposite during his speech at the World Economic Forum this week), but Japanese interest rates are historically low.

The problem is that the last time the Bank of Japan did this, Bitcoin (and the stock markets) took a serious dive in the weeks that followed, because the so-called ‘Yen Carry Trade’ was being unwound. Will that happen this time too?

Advertentie.

August 2024

For you to understand my reasoning we have to go back to the summer of 2024. In July, someone tried to murder Donald Trump. As a result, as strange as it may sound, his chances of winning the presidential election increased and Bitcoin also rose in sync with his increased prospects of winning.

Ever since the beginning of 2024, investors had noticed that Nvidia and Bitcoin were doing very well, so more and more money was borrowed (in Japanese Yen) to participate in those two investments (Nvidia stock and a Bitcoin ETF). Borrowing in Japanese Yen (at an ultra-low interest rate) and then investing in a non-Japanese asset, mostly one that is quoted in dollars, is known as the ‘Yen Carry Trade’.

The turning point of that trade came on July 31, 2024, when the Japanese central bank raised interest rates from 0 to 0.25% for the first time since 2007. The Japanese Yen suddenly strengthened against the US dollar. Investors rushed to reassess their loans as their payments suddenly became more expensive. Bitcoin was at the end of a sideways trade which had lasted months already, and gently started to dip, as did Nvidia.

That information, combined with a bad jobs report from the United States on Friday, August 1, set off a huge movement that resulted in a lot of phone calls and emails to Japanese banks canceling loans over the weekend of August 2 and 3. The Japanese Yen Carry Trade was suddenly a lot less popular and the stock markets reacted accordingly when they reopened the next Monday.

On August 4, Japan’s stock market crashed with a massive plunge. Bitcoin and Nvidia were also hit hard that day.

January 2025

Back to the present day. Yesterday, the Bank of Japan decided to raise interest rates again, bringing them to 0.50%. That seems very low, but it is a 17-year high for them – and this is happening while interest rates are falling in the United States and Europe.

So will investors reassess their Japanese loans from next week or not? And if they do, will we get that dreaded Bitcoin dump in the last week of January? Or is Trump’s demand to ‘investigate’ a strategic Bitcoin reserve enough to guarantee the current price?

Jeroen Kok

Jeroen is one of the lead copywriters on Cryptotips.eu and discusses all recent events in the crypto market. This includes news updates, but also price analyzes and more. He developed his passion for cryptocurrency during the bull run in 2017. He has learned a lot since then. The combination of cryptocurrency and creative writing is perfect for Jeroen and an excellent way to share his knowledge with a wide audience. Find me on LinkedIn / [email protected]
View all posts