Analyst Warns of Imminent “Liquidity Sweep” on Bitcoin Ahead of BOJ Decision

Investors and analysts are anticipating an interest rate hike from the Bank of Japan (BOJ) in the upcoming week. According to Polymarket, traders are pricing in a 98% probability for a BOJ rate hike in the upcoming central bank meeting on December 18-19. The analysts note that a tightening of financial conditions in Japan is likely to send a bearish signal to the crypto market. The crypto analyst Michaël van de Poppe, Founder & CIO of MN Capital & MN Fund, wrote on X (formerly Twitter) that “ I wouldn’t be surprised if we have a classic sweep on Monday taking place on #Bitcoin. After that, upwards trend back on”. He further mentioned that it was going to be a significantly volatile week as the BoJ would decide whether they were going to hike their interest rates, and a lot of macroeconomic data was packed into the final week before the holidays. 

Historically, the rate hikes in Japan often coincided with the price decline of Bitcoin. The legacy data shows that Bitcoin fell by around 23% following the March 2024 rate hike. Similar price drops of around 25% and 30% followed the central bank hikes in July 2024 and January 2025, respectively.  Investor caution is rising amid the ‘yen carry trade’ coming under threat due to the rising cost of borrowing in Japan. 

The ‘Yen Carry Trade’ Under Threat, Impacting Global Liquidity

Because of the lower interest rates in Japan, many investors and institutions used to borrow Yen at a cheaper rate and pour it into global markets, including crypto, a practice widely termed as ‘yen carry trade’. The practice is currently under threat as the elevated interest rates make borrowing costlier, offsetting the benefits. Moreover, with rising Japanese bond yields, the leveraged positions in Yen are likely to unwind. The Japanese two-year Government bond yields have recorded a 17-year high just weeks ago. The enhanced bond yields and strengthening Yen mean investors can earn better returns without the currency and market risks. 

With the Yen carry trade under threat, the global liquidity is likely to thin. Amid the uncertainties combined with historic data, the analysts are now predicting a 20% to 30% price decline for Bitcoin if the rate hike occurs on December 19.  

An Alternative Narrative Suggests Not-So Bearish Scenario 

Despite the macro caution gaining strength, analysts are also pointing out an alternative, not-so-bearish scenario. According to them, the 25 basis points cut from the Fed reserve would likely offset the downside risks from the BOJ. The enhanced dollar liquidity stemming from Fed rate cuts would decrease the impact of policy shifts in Japan. To put it simply, the global liquidity may not face a shock with the combined effects of both. 

In fact, the crypto analyst Quantum Ascend predicts that the combined effects of opposing policies can actually create a bullish scenario for bitcoin. He wrote on X (formerly Twitter),  “Japan raising rates has a lot of people worried about the potential impact on the market. 

Couple that with the Fed cutting rates, and it’s seemingly a mixed picture. But it’s NOT.

This is EXTREMELY BULLISH for crypto !!” 

Amid the varied narratives, Bitcoin is currently struggling around $89k. The price has remained below the $100k mark since mid-November. Whether the bearish sentiment continues throughout December will likely depend on how global liquidity adapts to the changing monetary policy shifts across the globe. It’s also worth noting that, as a sentiment asset, a positive ecosystem development or change in community sentiment can result in unexpected rallies for Bitcoin.