Bitcoin dipped below $85,000 once again on Thursday. The market-leading currency traded as low as $84,411 today on the Coinbase exchange, marking its lowest in December so far. 

The currency is currently trading at $85,444, down by over 5% from yesterday’s high. Overall, BTC’s performance is pointing to another bearish week, currently down by over 7.3% over the last seven days. 

Around $385 million in leveraged long positions got wiped out this Thursday, marking yet another day with significant market liquidations. In contrast, Coinglass’ liquidation heatmap shows a huge pool of over $100 million in short liquidations at the $86,941 zone.

Risk sentiment appears to have dipped this week, and some may say understandably so. On Friday, the Bank of Japan is set to raise interest rates for its highest point in 30 years, raising concerns about the unwinding of the yen carry trade and the ripple effects it could have across global equities, bonds, and crypto markets.

A Rate Hike in Tokyo

Japan spent the last decade implementing extremely cheap borrowing costs. Looking to stimulate the economy, the BoJ kept interest rates near zero and pursued aggressive asset purchases, hoping to spark inflation and encourage corporate investment.

As a result, Japan became extremely attractive for investors looking to borrow cheap money. This dynamic gave rise to the yen carry trade, where global funds borrowed in yen at near‑zero rates and redeployed capital into other investments. 

Japanese inflation has sat above the BoJ’s 2% target since 2022. When considering that wages are also rising in the region, the BoJ has enough reason to worry about inflation. 

So What Happens to Bitcoin When Japan Raises Rates?

A blow to the Yen carry trade generally leads to BTC and other digital assets stumbling. The BoJ raised rates three times since 2024, and on each of these occasions, BTC either flattened out or lost some value in the subsequent month. 

While BTC gained around 3% in the following month after the first hike in interest rate to 0.10% on March 2024, the subsequent rate hikes caused the asset to lose value in its next 30 days. However, it’s always important to note that there are far more things at play that affected Bitcoin’s price during that time. 

And one interesting thing about this (likely) rate hike is that markets are extremely confident that the BoJ will raise rates to 0.75% on December 19. So much so that futures markets gave it a 98% chance of a hawkish stance. 

This implies that most of the trades have already priced the move, which could ease negative market movements on Friday. Moreso, 0.75% is still cheaper when compared to benchmark rates in the U.S. and Europe, meaning that Japan’s borrowing costs will remain among the lowest in the developed world.