During the coming week following the inauguration of U.S. President-elect Donald Trump on January 20, another critical event could potentially shape the crypto market’s direction. Financial analysts predict that an expected increase in interest rates by the Bank of Japan (BOJ) might curb Bitcoin‘s surging optimism.
Will BOJ Play The Spoilsport?
Following a sudden drop to approximately $89,256 earlier in the week, Bitcoin has regained some of its lost value, now hovering close to the psychologically significant $100,000 mark. This prominent cryptocurrency appears set for a potential new phase under the Trump administration, whose election platform emphasized pro-crypto regulatory policies.
However, enthusiasm about Trump’s presidency could potentially be balanced out by the Bank of Japan’s anticipated move to increase interest rates. According to a chart shared by analyst Michael Kramer on X, there is a high probability (90%) that the BOJ will make this announcement on January 24th.
Keep in mind that a rise in interest rates by the Bank of Japan, scheduled for August 2024, sparked the well-known yen carry trade. This event caused Bitcoin’s value to drop significantly to $49,000. If interest rates are raised again this year, a similar sequence of events could occur.
Increased interest rates often boost the value of the Japanese yen by diminishing the allure of risky investments such as Bitcoin. This is due to the fact that increased rates decrease liquidity and elevate borrowing costs, making speculative ventures less enticing for high-risk, high-reward investors.
In March 2022, as the U.S. Federal Reserve (Fed) increased interest rates to combat escalating inflation, this action had a substantial effect on cryptocurrencies.
It’s important to note that since 2016, the Bank of Japan (BOJ) has kept interest rates in the negative territory. Interestingly, in the year 2024, the central bank made a move to increase rates not once, but twice, from -0.1% to 0.25%. While predictions suggest that the rate for the next meeting might be 0.45%, this could potentially shift based on the upcoming Japanese inflation data due out on January 23.
If the actual inflation rate exceeds predictions, it might cause turbulence in digital asset markets, potentially leading to a repetition of the yen carry trade reversal. Importantly, the annual headline inflation rate has reached 2.9%, which is the highest figure since August 2024.
Bitcoin Reaction Difficult To Predict
While a rise in interest rates by the Bank of Japan may appear bearish for cryptocurrencies like Bitcoin, it’s not guaranteed that their values will plummet immediately after the rate hike announcement.
In simpler terms, the price of Bitcoin remained stable earlier in the current month, even though the U.S. Federal Reserve hinted at fewer interest rate reductions in 2025 than previously anticipated. This change in the Fed’s plan for interest rate cuts is primarily because of persistent inflationary pressures.
Arthur Hayes, a crypto entrepreneur, forecasts a potential steep decline or “harrowing dump” in the value of cryptocurrencies during or around President Trump’s inauguration. Presently, Bitcoin is being traded at $98,212, representing a decrease of 1.1% over the past 24 hours.
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2025-01-17 13:12