Bank of Japan raises interest rates to 30-year high! Bitcoin faces bearish pressure, short-term rebound to 87,000

On December 19th Asian trading hours, Bitcoin briefly rebounded back above $87,000, escaping the panic of overnight breakdown below $85,000. The Bank of Japan as scheduled raised the benchmark interest rate from 0.5% to 0.75%, in line with market expectations, reaching a 30-year high. The market initially worried that the rate hike would unwind yen carry trades, triggering a tightening of global liquidity. However, after the “drop” was realized, a rebound occurred, indicating that the sell-off had been largely priced in.

The Triple Market Significance of the Bank of Japan’s Rate Hike

The Bank of Japan raised its policy rate by 25 bps to 0.75%, a unanimous decision at the two-day policy meeting. The central bank stated in its statement that this decision was unanimously approved and that further rate hikes are expected if the economic outlook remains unchanged. The BOJ indicated that if economic and price trends align with forecasts and improve, it will continue to raise the policy rate.

A 0.75% rate is still considered low by most standards, but the Bank of Japan has maintained near-zero or below-zero rates for years, attempting to pull the economy out of deflationary lows. Since the pandemic, most other central banks, such as the Federal Reserve, have raised rates to combat soaring inflation, then started cutting rates to help slow the economy. Japan, on the other hand, is moving in the opposite direction—raising rates while others are cutting.

Japan’s economy contracted at an annualized rate of 2.3% last quarter, but improved business confidence and price pressures prompted the BOJ to continue rate hikes. BOJ Governor Ueda Kazuo stated he believes wages in Japan will continue to rise, as reduced labor pools due to less corporate competition support economic growth.

The Three Global Market Impacts of the Bank of Japan’s Rate Hike

Partial unwinding of yen carry trades: Rate hikes narrowed the yen-US dollar interest rate differential, prompting some carry traders to close positions, but since this was “expected,” the impact was already priced in.

Marginal tightening of global liquidity: Japan is the world’s third-largest economy, and its shift toward tightening monetary policy will influence global capital costs.

Weakening of the US dollar’s relative strength: When Japan raises rates and the US cuts rates, the dollar’s attractiveness diminishes, possibly prompting some capital to flow back into the yen.

The key lies in the phrase “in line with expectations.” The market had already discussed and priced in this rate hike over the past week. During Bitcoin’s decline from $90,000 to $84,450, expectations of a BOJ rate hike were one of the main negative factors. When the rate hike actually occurred without exceeding expectations, it instead triggered a “sell-off exhaustion” rebound.

Tom Lee Maintains Bullish Outlook and January New High Prediction

Fundstrat co-founder and BitMine Chairman Tom Lee injects confidence into the market. In an interview with CNBC, he said: “I don’t think Bitcoin has peaked. Our previous expectation of a new high in December was overly optimistic, but I am confident Bitcoin will hit a new high before January.”

Tom Lee is one of Wall Street’s most well-known Bitcoin bulls. Although his forecasts are often overly optimistic, his analytical framework is worth noting. He believes the correction in December is healthy, clearing excessive leverage and short-term speculators, creating a more solid foundation for a rebound in January. This “dip before the jump” logic aligns with historical bull market correction patterns.

Tom Lee’s confidence is based on three pillars. First is the institutional asset allocation window: January marks the start of a new fiscal year, when many institutions will rebalance portfolios. Vanguard is opening trading for 50 million clients’ ETFs, and US banks are allowing advisors to recommend crypto allocations—these new channels will take effect in January. Second is seasonal strength: historical data shows an average return of 15% in February, with over 50% in the first quarter. Third is Donald Trump’s inauguration (January 20), which may release more crypto-friendly policies.

However, Tom Lee’s predictions should be approached with caution. His firm, BitMine, holds over 4 million ETH, and his bullish stance may be influenced by holding bias. Additionally, “hitting a new high in January” implies breaking through $126,000, which requires a roughly 45% increase from the current $87,000 within a month—an extremely strong catalyst would be needed to achieve this.

Key Technical Levels and Risks of Carry Trade Unwinding

(Source: Trading View)

On the technical side, Bitcoin faced resistance at the $90,000 psychological level earlier this week but found support near the 78.6% Fibonacci retracement at $85,569, consolidating around that level until Wednesday. However, on Thursday, Bitcoin declined, closing below $85,569. As of Friday’s report, Bitcoin traded around $87,000.

If Bitcoin continues to decline, the downtrend could extend toward the psychological $80,000 level. The Relative Strength Index (RSI) on the daily chart is at 36, below the neutral 50, indicating increasing bearish momentum. Additionally, the Moving Average Convergence Divergence (MACD) showed a death cross on Wednesday, further supporting a bearish outlook.

From an upward perspective, if Bitcoin rebounds, it could continue toward the key resistance at $90,000. Breaking and holding above $90,000 would open the door to $95,000–$100,000. The key is whether today’s rebound can sustain; if it is merely a technical correction followed by further decline, testing the $80,000 support becomes inevitable.

The threat of carry trade unwinding has been partially realized but not fully materialized. The rate hike by Japan weakened the yen-denominated borrowing for dollar assets. Such major shifts could ripple through global markets. When many traders face pressure to sell stocks or other assets in one go, losses can snowball. Last week, when the BOJ announced the rate hike, Bitcoin dropped below $86,000. Now that the hike has been implemented, the short-term impact has passed, but medium- and long-term effects remain to be seen.

The yen-to-dollar exchange rate is currently about 156, nearly double the 2012 level and close to this year’s high. If Japan continues to hike rates and the US cuts rates, the yen could rebound to the 140–150 range, further unwinding carry trades and exerting ongoing pressure on global risk assets. In the coming weeks, markets will closely watch Ueda Kazuo’s comments on future rate hike prospects, which will determine whether Bitcoin can hold its current rebound.