Bank of Japan Eyes Rate Hike to Highest Level Since 1995

Japan's central bank is gearing up for a seismic shift—one that could send traditional finance scrambling.

The Big Pivot

Forget the era of ultra-loose policy. The Bank of Japan is now staring down a landmark move: raising interest rates to levels not seen in three decades. It's a direct shot across the bow of the old financial guard.

Why This Time Is Different

Markets have heard 'maybe next time' for years. But the chatter has shifted from 'if' to 'when.' The central bank isn't just tweaking dials—it's preparing to rewrite the playbook entirely. That 1995 benchmark isn't just a number; it's a line in the sand.

The Domino Effect

Higher rates in Japan don't stay in Japan. They ripple through global bond markets, recalibrate currency trades, and force every major fund to rethink its playbook. It's a liquidity earthquake with aftershocks from Wall Street to the City of London.

Finance's Ironic Twist

Here's the kicker: while traditional banks brace for the regulatory whiplash, decentralized finance just keeps humming. No emergency meetings, no frantic portfolio rebalancing—just code executing as written. It's almost as if predictable, transparent rules are... efficient. Who knew?

The final decision hasn't landed, but the direction is clear. The world's last holdout for negative rates is ready to join the party—three decades late, and just as the digital age is rewriting all the rules.

Crypto Markets Reel as Policy Shift Threatens Leveraged Positions

Bitcoin traded around $86,000 in early December after a sharp 5% single-session drop, briefly slipping below $85,000 and triggering more than $637 million in long liquidations.

During that time, the crypto Fear and Greed Index plunged to extreme fear levels near 20, down from a trough around 10, as the BOJ’s policy pivot tightened financial conditions and reduced tolerance for leverage that had previously supported rallies.

Speaking with Cryptonews, Ignacio Aguirre, CMO at Bitget, said a stronger yen “raises the risk of unwinding yen carry trades which is a move that can temporarily weigh on crypto valuations as Leveraged positions reset across global markets.”

So far this month, Bitcoin saw the largest 24-hour wipeout, with approximately $251.69 million liquidated, while Ethereum followed with roughly $111.31 million in liquidations.

The selloff in Japanese government bonds has extended beyond domestic markets, pushing 10-year U.S.

Treasury yields up to about 4.08% as the policy shift rippled through global funding markets.

Crypto-exposed stocks felt the impact of Bitcoin’s slide as risk aversion picked up, with MicroStrategy shares falling sharply while Coinbase and Robinhood dropped by mid-single digits.

Bitcoin hovered NEAR $86,000 in Asia after a sharp crypto selloff and a global bond slump kept traders cautious and risk appetite weak.#CryptoMarket #AsiaMarketOpen https://t.co/r8o6wn1cBo

Stablecoin Growth Adds New Dynamic to Bond Market as BOJ Steps Back

Japan’s emerging stablecoin sector may reshape the country’s sovereign debt landscape as the BOJ reduces its bond purchases after years of aggressive monetary easing.

JPYC, the Tokyo-based issuer behind Japan’s first yen-pegged stablecoin, which launched in October under the nation’s revised Payment Services Act, has targeted circulation of 10 trillion yen within three years.

JPYC plans to invest 80% of its proceeds in JGBs and 20% in bank deposits, potentially filling the gap left by the central bank’s retreat from a market where it currently holds roughly 50% of the 1,055-trillion-yen total.

The Financial Services Agency has endorsed a pilot program involving Japan’s three largest banks to develop a shared framework for issuing yen-backed stablecoins, initially targeting corporate clients.

Meanwhile, the government is preparing its most sweeping crypto oversight overhaul in nearly a decade, moving regulation from the Payment Services Act into the Financial Instruments and Exchange Act to treat digital assets more like traditional investment products.

@fsa_JAPAN moves crypto under securities law, stricter disclosure, insider trading ban, and enhanced oversight of exchanges planned. #CryptoNews #Japan #FSAhttps://t.co/eC3i8zW6kI

Tax Reform and Institutional Entry Signal Maturing Market Structure

Japan is preparing to introduce a flat 20% levy on crypto trading gains in 2026, replacing progressive rates that can reach 55% and placing digital assets on the same footing as stocks.

The reform WOULD split crypto income into a separate taxation scheme, with 15% directed to the central government and 5% to local authorities.

Additionally, Nomura Asset Management has formed a cross-division task force to prepare product strategies ahead of the regulatory changes, while Daiwa Asset Management is coordinating with ETF specialist Global X Japan.

Despite the near-term volatility from BOJ tightening, Aguirre expects BTC to “retest the $95,000–$100,000 range by early 2026, while ETH could climb toward $3,800 as institutional flows resume and macro conditions stabilize.“

Notably, Tokyo Stock Exchange operator Japan Exchange Group is weighing stricter backdoor listing rules for companies shifting into large crypto positions, following losses from recent hoarding waves that raised investor protection concerns.

The FSA also plans to require crypto exchanges to hold dedicated liability reserves against customer losses, mirroring requirements long used in Japan’s securities industry, following high-profile hacks, including DMM Bitcoin’s $48.2 billion theft in May 2024.