Monetary Policy Turning Points: How the Fed and Bank of Japan Influence Crypto Markets

Stable Weekly Balance Despite Elevated Volatility

The crypto market proved robust during the past trading week: Bitcoin (BTC) held its ground in the $90,000 range and closed the week virtually unchanged ^[1]. Ethereum (ETH) even gained around two percent, closing above the $3,000 mark ^[1]. Less positive was the performance of Solana (SOL) with a decline of four percent, and particularly Ripple (XRP), which ended the week as the laggard among top-10 altcoins with a price drop of nearly seven percent, just above the $2.00 level ^[1].

U.S. Labor Market Data in Focus

For the coming trading week, investors are increasingly focusing on macroeconomic indicators from the United States. Particularly the latest data from the U.S. labor market and developments in jobless claims are likely to move prices in both stock and crypto markets ^[1]. These indicators are considered important leading indicators for the future monetary policy of the U.S. Federal Reserve.

Bank of Japan Puts Markets on Alert

Particularly acute nervousness surrounds the monetary policy of the Bank of Japan (BoJ). The prospect of another interest rate hike has been causing unrest in stock and crypto markets for days ^[2]. Such a move would raise the country's policy rate to its highest level since 1995 ^[2].

Yen Carry Trade Under Pressure

An interest rate increase could make the decades-long popular yen carry trade less attractive—that is, borrowing in cheap yen to finance riskier investments such as U.S. stocks or Bitcoin ^[2]. However, data from the U.S. derivatives regulator CFTC shows that speculative investors are now positioned net long in the yen futures markets ^[2]. The scope for a sudden, extremely sharp yen rally and panic short covering is therefore smaller than headlines suggest ^[2].

Risk of a Gradual Regime Change

The often-cited chain reaction in which investors must sell off risky assets like Bitcoin en masse is therefore less likely ^[2]. Furthermore, the impending BoJ rate hike comes as little surprise—Japanese government bond yields suggest that hawkish monetary policy is already priced in ^[2].

Nevertheless, Japan's monetary policy remains relevant for crypto: Rising Japanese bond yields have recently pressured bond markets globally and dampened investor risk appetite—with corresponding headwinds for Bitcoin and other highly speculative assets ^[2].

Long-Term Impact on Global Liquidity

Should another interest rate increase occur in the coming weeks and Japanese investors increasingly repatriate capital from abroad, this could further dry up global liquidity ^[2]. The end of Japan's decades-long ultra-low interest rate policy could indeed lead to a regime change—though it will likely be gradual ^[2].

For crypto investors, monitoring macroeconomic developments remains crucial. While the stabilization of the Bitcoin price around the $90,000 mark demonstrates resilience, monetary policy decisions in the United States and Japan will significantly influence market developments in the coming weeks.