On December 19, the Bank of Japan announced an interest rate hike of 25 basis points, raising the policy rate from 0.5% to 0.75%. This is the highest interest rate level since 1995 and signifies Japan's formal farewell to nearly 30 years of ultra-loose monetary policy.

The fundamental reason driving this rate hike is very clear: inflationary pressure is too high. Japan's core CPI has exceeded the official target of 2% for 44 consecutive months, with a year-on-year increase directly jumping to 3% in November. The depreciation of the yen has led to a continuous rise in the prices of imported goods, severely eroding household purchasing power. This is the third time since Governor Ueda's appointment that the Central Bank has taken action to raise interest rates.

However, there are many contradictions regarding this interest rate hike. Japan's actual GDP fell by 0.6% quarter-on-quarter in the third quarter, and the annualized decline reached 2.3%, bringing the economy close to a recession. Raising interest rates against this backdrop will inevitably suppress consumption and investment. More distressingly, the government is simultaneously advancing a fiscal stimulus plan of 18.3 trillion yen, creating a "tightening monetary policy + loosening fiscal policy" counteracting situation, which may instead raise government debt costs and weaken inflation management effectiveness.

The market reaction is quite divided. The Japanese yen has not risen against the US dollar but instead has fallen, breaking below the 157 mark. The yield on 10-year government bonds has reached a new high since 2006. The Nikkei 225 index has risen by 1%, indicating that the stock market has largely digested the interest rate hike expectations.

From the subsequent attitude of the Central Bank, as long as the economic and price performance meets expectations, further interest rate hikes are certain. The market generally believes that Japan's interest rates will exceed 1% by 2026. This ongoing tightening environment from major global central banks will have a lasting impact on the pricing logic of risk assets like BTC and ETH—under high interest rate conditions, the attractiveness of non-yielding assets declines relative to others.