The difficult situation faced by the Bank of Japan this time is actually about “weaning” global funds. As Japan is the cheapest source of capital in the world over the past few decades, once Japanese interest rates rise, it will directly hit the wallets of the crypto market.

Liquidity contraction and risk appetite decline

For years, Japan has maintained low interest rates, turning the yen into the world’s favorite “cash machine.” Investors have gotten used to borrowing low-interest yen and converting it into dollars to buy high-yield assets such as Bitcoin (this is what’s called the carry trade).

Capital withdrawal: If a Japanese rate hike leads to the yen strengthening, this arbitrage logic will fail. In order to repay debts, funds will be forced to pull back from overseas. As crypto is a high-risk asset with good liquidity, it is often sold off first to raise cash.

Historical pattern: Looking back at previous Japanese rate hikes, Bitcoin has usually seen sharp pullbacks of more than 20%, because the floor of global risk-free interest rates is raised, making everyone more conservative and less willing to hold assets with big volatility.

How should you allocate assets at times like this?

Before the April 28 decision takes effect, market sentiment will be very sensitive, so it’s recommended to take a defensive posture:

Control your positions: Temporarily reduce high-leverage trades, and keep a bit of cash or stablecoins on hand as a buffer to prevent sudden and severe market swings.

Core holdings: If you’re bullish in the long term, you can focus on mainstream assets like BTC and ETH, and use a dollar-cost averaging strategy to enter in batches—don’t try to catch the bottom all at once.

Watch the exchange rate: Keep a closer eye on the USD/JPY exchange rate. If this number falls quickly (the yen rapidly appreciates), it is usually an early warning signal that risk assets are declining.
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