The reversal of the US dollar trend triggers global capital shifts: Japan's interest rate hike and its chain reaction on Bitcoin

The transformation of the U.S. dollar policy framework is reshaping the global financial landscape. As the dollar’s trend undergoes significant adjustments in the second half of the year, the Bank of Japan’s interest rate decision will become a key trigger for the reallocation of global capital. This Sunday, the BOJ will hold a rate decision meeting, which not only involves domestic policy but also, through changes in the dollar’s movement, will directly impact risk asset allocations in the cryptocurrency market.

According to data from the prediction platform Polymarket, the market believes there is a 97% chance that the BOJ will raise interest rates; only 3% of investors are betting on rates remaining unchanged. If the rate hike materializes, Japan’s policy rate will reach 0.75%, hitting a nearly 20-year high. Although this figure remains relatively low by global standards, for the worldwide financial system relying on yen-denominated low-cost financing, it signifies a structural shift.

The Endgame of Yen Arbitrage Trading: From “Funding Machine” to “Liquidity Exhaustion”

Over the past decades, the yen has been the preferred financing currency for global institutional investors. Investors borrow in ultra-low-interest-rate yen and then shift their funds into global stocks, bonds, and cryptocurrencies. This strategy worked smoothly during a period of sustained dollar strength, but as the dollar’s trend adjusts in the second half of the year, the situation has quietly changed.

Analyst Mister Crypto warns: “For decades, the yen has been the go-to currency for borrowing and converting into other assets. But with Japanese bond yields rising rapidly, this arbitrage is shrinking.” Simply put, when borrowing costs increase, leveraged positions in yen will be forced to unwind, and investors will be compelled to sell risk assets to repay debts. This directly explains why changes in the dollar’s trend immediately impact the prices of risk assets like Bitcoin.

Repeating History: The Inevitable Decline After BOJ Rate Hikes

Traders are now focusing not on current quotes but on the historical sharp declines following BOJ rate hikes:

• March 2024 BOJ rate hike: Bitcoin dropped about 23%
• July 2024 BOJ rate hike: Bitcoin dropped about 25%
• January 2025 BOJ rate hike: Bitcoin fell over 30%

Analyst 0xNobler issues a stern warning: “Every time Japan raises rates, Bitcoin crashes 20%–25%. With the policy rate rising to 75 basis points, based on historical patterns, Bitcoin could face a risk of falling below $70,000.” Currently, Bitcoin trades at $89,870. If we project based on past declines, investors should reassess their positions in advance.

Market Divergence: The Confrontation Between Bearish and Bullish Views

Despite concerns raised by historical patterns, not all market participants believe rate hikes are necessarily bearish. Another perspective suggests that if Japan raises rates simultaneously with the Federal Reserve initiating a rate-cut cycle, it could actually create a “long-term bullish” environment for cryptocurrencies.

Macro analyst Quantum Ascend believes this is not merely a liquidity contraction but a “systemic shift.” He points out: “The Fed’s rate cuts will inject dollar liquidity and weaken the dollar’s strength, while the BOJ’s moderate rate hikes only support the yen and won’t fundamentally destroy global liquidity.” Against the backdrop of a weakening dollar in the second half of the year, capital may rotate into risk assets with asymmetric upside potential, which is the “sweet spot” for cryptocurrencies—relatively low risk with stable returns.

Short-term Vulnerabilities: Liquidity and Market Confidence

Analyst The Great Martis warns that pressure in the bond market is already forcing the BOJ to act, “which could trigger a wave of unwinding in arbitrage trades and cause a chain reaction in the stock market.” He notes that major stock indices are showing signs of “head diffusion,” and the synchronized rise in global yields indicates mounting pressure.

Meanwhile, Bitcoin’s price behavior also reflects this uncertainty. Since December, the price has been flat and directionless. Analyst Daan Crypto Trades points out that, ahead of year-end holidays, market liquidity is low, investor confidence is weak, and the uncertain dollar trend will lead to volatile price swings.

Outlook: The New Balance of U.S. Dollar Policy and Global Capital

With stock markets signaling a top and yields rising steadily, coupled with Bitcoin’s extreme sensitivity to liquidity changes driven by Japan, the BOJ’s decision will undoubtedly be one of the most influential macroeconomic catalysts this year. The deeper question is: how will global liquidity respond to this shift in the dollar trend?

Whether it triggers another wave of sharp corrections or lays the groundwork for a rebound after volatility, the core issue may not just be “whether to raise rates” but the long-term direction of the dollar policy framework. As the dollar’s strength gradually wanes and Japan’s interest rate structure is reshaped, the flow of global capital will redefine the value of risk assets in the next phase. In this macro adjustment, investors need to closely monitor the evolution of the dollar trend and the coordination of global central bank policies.