Interesting what’s happening in Japan these days. The BoJ is preparing for an interest rate hike that could have more significant effects than many expect. We’re talking about raising the benchmark rate to 0.75%, the highest level in the last 30 years. That’s no small move.

For those who have been following the markets for a while, the Japanese carry trade has always been one of those factors quietly moving the waters. Hedge funds and traders have borrowed yen almost for free to finance positions in high-risk assets, mainly tech and U.S. bonds. When these interest rates in Japan rise, the game changes. Money stops flowing into risky assets and the so-called unwinding begins.

The latest episode of BoJ tightening, in July 2024, showed us this well. Rates rose to 0.5%, and what happened was dramatic: the yen appreciated, risk aversion spiked, and Bitcoin plummeted from about $65,000 to $50,000 in a few weeks. Pure panic.

But this time, the context is different, at least on paper. Speculators already hold long positions on the yen, meaning that a BoJ rate hike might not trigger the same immediate reaction. Also, yields on Japanese government bonds have already risen significantly during the year, reaching multi-decade highs. The upcoming interest rate increase mainly reflects the market that has already moved in advance.

On the other hand, the U.S. Federal Reserve just cut rates by 25 basis points, reaching a three-year low. The dollar index has fallen to seven-week lows. This creates an interesting dynamic: while rates in Japan are rising, those in the U.S. are falling. It’s not the classic scenario of global panic.

Anyway, Bitcoin is currently around $72,800. We’re not far from pre-summer levels. What I’m watching is Japan’s fiscal situation: debt at 240% of GDP. If things go badly, it could become a serious source of volatility. Especially considering the government is planning a major fiscal expansion while inflation hovers around 3%, and the BoJ’s credibility is starting to be questioned.

The yen trades around 156 against the dollar. A stronger yen historically meant downward pressure on Bitcoin, while a weaker yen supported prices. Yen strength constricts global liquidity conditions, and Bitcoin is particularly sensitive to these movements.

The point is that interest rates in Japan are rising, but the macro context is complex. It’s not the simple scenario from a year ago. We need to watch how the market reacts when the BoJ makes its move, but also pay attention to signals from Japan’s fiscal situation in the coming months. That could be the real source of surprises.