Ahead of the BOJ Interest Rate Decision on December 18-19, the Crypto Market Shaken by US$$643 Million Liquidation

Source: TokocryptoBlog
Original Title: Ahead of BOJ Interest Rate Decision December 18, Crypto Market Response?
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Ahead of the Bank of Japan’s ((BOJ)) key interest rate decision on December 18-19, the crypto market has been shaken by another wave of massive liquidations totaling around US$643 million on December 1.

According to prediction market platform data, market participants now assess the probability of a BOJ rate hike at 57% at this month’s meeting, following a series of hawkish signals from BOJ Governor Kazuo Ueda. Currently, the BOJ’s benchmark interest rate sits at around 0.5%.

Forced Liquidations Reach US$643 Million

Data shows forced liquidation of crypto positions reached around US$643 million on December 1. During this period, a total of 218,844 traders were affected by this position wipeout.

Most of those swept out were long positions ((betting on price increases)) with a value of about US$567 million. Meanwhile, short positions ((betting on price decreases)) amounted to only around US$69 million.

Bitcoin was the most affected asset, with liquidations of around US$186 million, followed by Ethereum at about US$138 million. This pattern shows that the majority of market participants had previously bet on continued crypto price increases when sudden selling pressure hit.

Japanese Bond Yields Highest Since 2008

Market participants link this crypto turmoil to shifting expectations for Japanese monetary policy. The yield on 10-year Japanese government bonds surged to around 1.86% on December 1, the highest level since April 2008.

This yield increase reflects market concerns that the BOJ is edging closer to a tighter monetary stance after years of ultra-loose policy.

In a speech to business leaders in Nagoya on December 1, Governor Kazuo Ueda stated that the BOJ is “actively gathering information regarding companies’ stance on wage increases” ahead of the December 18-19 meeting. This statement was viewed as a signal that the central bank is leaving room for further tightening if wage and inflation pressures strengthen.

The BOJ previously doubled its benchmark interest rate from 0.25% to 0.5% in January, so a potential December hike would mark the second such increase this year.

Yen Carry Trade at Risk

The potential for a Japanese interest rate hike also puts pressure on a popular investment strategy known as the yen carry trade. For years, global investors have borrowed yen at extremely low rates and funneled it into higher-yielding assets, such as US stocks, European bonds, and even crypto assets.

If Japanese interest rates rise and the yen strengthens, this strategy becomes less attractive. Investors may be forced to unwind positions financed with yen loans, triggering sell-offs across various asset classes, including crypto.

The USD/JPY exchange rate was around 156.58 on November 21. History shows that when the rate approaches 160 per dollar, Japanese authorities often consider intervention to curb yen weakness. If a BOJ rate hike triggers further yen appreciation, pressure to close out carry trades could intensify and cause another wave of liquidations in risk and highly leveraged markets such as crypto.

Probability of BOJ Rate Hike

In derivatives and prediction markets, participants are now pricing in a scenario where the BOJ raises rates by 25 basis points in December as slightly more likely than no policy change.

After Ueda’s speech on December 1, the probability of a rate hike moved from around 50% to 57%. On the other hand, the chance of the BOJ holding rates at 0.5% is estimated at about 40%.

Developments ahead of the BOJ meeting on December 18-19 are now one of the key factors being closely watched by global market participants. Any new signals related to Japanese interest rate policy could trigger further volatility, not just in bond and forex markets, but also in the highly leveraged crypto market.