Why does a rate hike in the Japanese yen always shake high-risk assets like BTC? The underlying logic is actually quite straightforward.

In global cross-border lending, yen arbitrage trading accounts for a large share—data shows it makes up about 60%. What does that mean? It means a lot of funds borrow yen from Japan and invest in places with higher interest rates (including various high-yield crypto assets) to earn the interest spread. As long as the yen maintains low interest rates, this business can survive.

But once the Bank of Japan raises interest rates, the game changes. The arbitrage space gets squeezed, and high-yield assets that relied on this carry trade start to bleed—money continuously flows back from the crypto market to Japan. Even more painfully, during the yen's appreciation, the prices of these assets are actually hit hard. See, it’s the rate hike that kills the arbitrage, and the exhaustion of arbitrage kills the asset valuation. That’s why a policy decision in Japan can ripple through the global crypto market.