The Bank of Japan shifts to shake global liquidity—Why cryptocurrency investors should be more vigilant

The Bank of Japan is brewing a policy shift that could have a more profound impact on the cryptocurrency market than many people imagine. As the central bank gradually abandons decades of ultra-low interest rate policies, markets anticipate a hike of about 25 basis points, bringing the policy rate close to 0.75%. This turning point is significant for asset classes that rely on a globally loose liquidity environment.

How Yen Appreciation Triggers a Chain Reaction

When the Bank of Japan raises interest rates, the yen tends to strengthen, directly reducing the profitability of yen arbitrage trades. Historical data shows that bitcoin is highly sensitive to such policy changes. Past experiences indicate that bitcoin fell 27% after the March 2024 rate hike, 30% after the July hike, and even 31% after the January 2025 hike. These figures clearly reflect a strong correlation between central bank policy shifts and bitcoin price volatility.

Analysts point out that when investors become aware of an appreciating yen trend, they tend to adjust their positions in advance. Before the latest policy expectations were announced, bitcoin had already declined about 7%, reflecting the market’s forward-looking response to policy changes.

Weak US Employment Adds Pressure on Retail Investments

Meanwhile, the performance of the US labor market is concerning. Non-farm payrolls in October decreased by 105,000, and although there was a rebound to a 64,000 increase in November, this unstable trend exposes underlying economic fragility. Senior investment strategist Kevin Gordon notes that sluggish employment growth and stagnant wages directly pressure household disposable income.

This income squeeze has a tangible impact on US retail investors in cryptocurrencies. When household finances are strained, the free cash available for high-risk assets inevitably shrinks.

Altcoins Hit Harder, Bitcoin Shows Relative Resilience

Interestingly, internal performance within the crypto market is markedly differentiated. Altcoins depend far more on retail discretionary funds than bitcoin. When household budgets tighten, these smaller assets tend to be the first to come under pressure. In contrast, bitcoin benefits from a broader base of institutional investors, exchange-traded funds, and other participants, making it more resilient to declines.

This means that investment strategies in cryptocurrencies become especially crucial—the performance of core assets versus marginal assets could diverge significantly.

The Era of Liquidity-Driven Markets Is Ending

Although the Federal Reserve may lean toward easing policies amid a cooling labor market, analysts believe that mere liquidity injections may not offset the decline in household incomes. Rallies driven primarily by central bank policies are often highly sensitive to real economic changes.

Therefore, the pricing logic of the crypto market is shifting—from retail demand dominance to global monetary policy influence. The key variable for crypto investment has shifted from “Can households afford it?” to “Will central banks remain accommodative?”

Leverage Liquidation Risks Surface

Under the expectation of yen appreciation, traders holding yen-denominated borrowing positions face the threat of forced liquidations. Forced liquidations can amplify price volatility, especially in assets like bitcoin that are highly liquid but also highly volatile. Market observer NoLimit warns that this policy shift could trigger sharp bitcoin price swings in the short term.

Faced with the dual pressures of the Bank of Japan’s policy shift and slowing US income growth, crypto investors need to reassess their risk exposure, particularly the scale of leveraged positions.