BoJ’s rate hike sees bitcoin and stocks hold firm, avoiding last summer’s meltdown

Bitcoin, along with U.S. equity indices, has responded more measuredly this time compared to the fallout from the Bank of Japan’s rate hike in late July 2024.

The BoJ’s latest decision to raise its short-term policy rate by 25 basis points (bps) to 0.5%, up from 0.25%, brings Japan’s benchmark rate to a level not seen in 17 years. This policy shift, though significant, appears to have been anticipated by markets, resulting in a calmer reaction across risk assets.

In early trading in New York on Friday, U.S. stock indices remained near their all-time highs, posting only slight downturns but still poised to close with a second straight winning week. Bitcoin also held steady, trading above the $106,000 mark—up 2% in the past 24 hours and flat on the week—according to The Block’s Prices Page.

This calm starkly contrasts the aftermath of the BoJ’s previous rate hike in late July 2024. That decision caught investors off guard and triggered a sell-off in global markets. At the time, bitcoin’s price plummeted from $66,000 to $55,000 in just one week as investors unwound yen carry trades to meet the higher borrowing costs in Japan. The sell-off extended to equities, amplifying the market turmoil.

Rate hike may have been priced into market

Analysts attribute today's muted reaction to better market preparedness and a gradual approach by the BoJ.

"This rate hike was expected and priced in by the markets, Japan still keeps the lowest interest rate world," WeFi head of growth Agne Linge told The Block. "For yen carry trade the gap is still wide between Japan and U.S. so traders unlikely to unwind them."

The yen carry trade involves borrowing in Japan’s low-interest-rate environment to invest in higher-yielding assets elsewhere. Any increase in Japan’s benchmark rate can pressure traders to exit positions and sell riskier assets like stocks and  bitcoin to meet higher borrowing rates on yen-denominated loans.

Market resilience to Friday's rate hike was also reflected in the robust sentiment around bitcoin , driven by increased interest following the pro-crypto stance of President Trump’s Administration.

"The impact on risk assets like Bitcoin must also be viewed in the context of favorable regulatory developments and growing institutional interest," Linge said.

Redstone COO Marcin Kazmierczak echoed this sentiment, noting that the BoJ’s gradual approach reduced market shock.

"Unlike last year's volatile unwinding that rattled markets, today's well-telegraphed move and gradual approach reduces shock risks," Kazmierczak told The Block. "The measured market response suggests traders have better positioned themselves this time around."

The sell-off that followed the BoJ’s late July 2024 rate hike erased approximately $6.4 trillion from global stock markets over three weeks. The 225-issue Nikkei stock average experienced its steepest decline since 1987. This episode highlighted the widespread impact of the yen carry trade, a strategy that remains influential across global markets.