Japan’s monetary policy shift affects global markets
Japan’s move toward higher interest rates is starting to ripple through global risk markets. Bitcoin seems particularly vulnerable as investors prepare for what could be the end of three decades of ultra-low funding costs. The Bank of Japan is expected to raise its benchmark rate to 0.75% at the December policy meeting—that would be the highest level since 1995.
Already, the prospect of this change has strengthened the yen. It moved from above 155 per dollar to roughly 154.56 on Friday. Policy makers appear inclined to increase by 25 basis points at the December 19 meeting, according to people involved in the discussions. They’ll likely proceed unless some major shock hits global or domestic markets.
Governor Kazuo Ueda said the board would make an appropriate decision, using similar wording to previous increases. Market data suggests the likelihood of a December move is nearly 90%. The shift seems to have political backing too, with government ministers aligned with Prime Minister Sanae Takaichi supporting the tightening agenda.
Impact on carry trades and Bitcoin
The increased cost of funding directly affects the yen carry trade. This approach allowed hedge funds and proprietary desks to borrow cheaply in yen and invest those funds in more volatile assets. Bitcoin has been one of the markets most sensitive to changes in leverage and liquidity. It’s susceptible as investors reposition themselves to account for higher borrowing costs.
The yen’s strengthening aligns with macro portfolio de-risking, which could constrain the liquidity environment that helped Bitcoin recover from intramonth lows. This tension showed up earlier in the week when Bitcoin fell to around $86,000 before rising to about $89,000, moving somewhat in tandem with U.S. equities. Its price movements have been tied to fluctuating global rate expectations during what’s been a tumultuous month for macro-linked assets.
Crypto tax changes coming in 2026
This policy change coincides with Japan’s planned redesign of its cryptocurrency tax regime. The country plans to shift to a flat tax of 20% on trading gains, effective in 2026. The tax would be equivalent to those levied on equities and investment trusts, treating crypto like any other financial instrument.
Under the proposal, crypto earnings would form a distinct tax bracket between national and local governments. Currently, digital asset income faces a progressive tax structure that can exceed 55% of total income. Critics argue this structure doesn’t promote sales because it creates the risk of large tax liabilities.
Advocates of the reform think the reduced, unified rate will boost participation in Japan’s domestic crypto market. The market saw about eight million active accounts and roughly 1.5 trillion yen (around $9.6 billion) of spot exchange volume in September.
Asset managers adjusting strategies
Japanese asset managers are already aligning with the new regulatory direction. Nomura Asset Management has established an internal task force to assess product strategies. Daiwa Asset Management is collaborating with Global X Japan to explore potential offerings.
Mitsubishi UFJ Asset Management and Amova Asset Management are renegotiating their custody, pricing, and standards protocols. They’re preparing to support more digital-asset exposure for both retail and institutional investors. It’s interesting to see how quickly these traditional financial institutions are adapting to the changing landscape.
I think what’s happening in Japan matters more than people realize. The yen carry trade has been a significant source of global liquidity for years. As that cheap funding dries up, it could affect all sorts of risk assets, not just Bitcoin. The timing with the tax changes adds another layer—perhaps making Japan’s crypto market more attractive domestically while global liquidity conditions tighten.
It’s a complex picture, really. Higher rates might pressure leveraged positions, but clearer tax rules could bring more institutional participation. We’ll have to wait and see how these competing forces play out in the coming months.
