On December 19th, the Bank of Japan raised its benchmark interest rate by 25 basis points, now at 0.75%—the highest level since 1995. Honestly, this move is highly significant. The underlying logic is clear: inflation has been exceeding targets, the yen is depreciating, and policy adjustments are necessary.

So, what practical impact does this have on the market? Let’s first look at the stock market. The immediate reaction to rate hikes is increased financing costs, which directly pressure high-debt industries like real estate and utilities. Valuations are also being suppressed—when the market discount rate rises, the overall valuation center shifts downward. However, Japan’s economy is currently in a mild recovery, corporate profits remain high, the labor market is tight, and wage growth has hit a 34-year high, providing some buffer for the stock market.

From a structural perspective, different industries respond very differently to rate hikes. The financial sector benefits from wider interest spreads; domestically driven companies tend to resist better; but export-oriented companies face uncertainty—if the yen appreciates and stabilizes after the rate hike, these companies’ overseas earnings converted back into yen will suffer exchange losses. This is a typical divergence during the initial phase of policy normalization.

Now, looking at cryptocurrencies—this is the part worth paying attention to. The goal of rate hikes is to break the cycle of "yen depreciation leading to imported inflation." Theoretically, Japanese assets should become more attractive. But the actual situation is more complex.

After the policy announcement, the yen briefly fell below 156 against the dollar, but in the medium to long term, the yen is expected to gradually stabilize. This is especially important because the Federal Reserve is still in a rate-cutting cycle. Think about it—under this environment, carry trades involving yen financing to buy high-yield assets might be unwinding. Once carry trades reverse, capital will flow back into Japan, which could have a significant impact on risk assets like cryptocurrencies.

Regarding the crypto market, the impact can be viewed from two dimensions. In the short term, yen appreciation will trigger a contraction in overall risk appetite, which is unfavorable for the crypto market. Additionally, liquidity expectations may tighten further, increasing volatility. In the long run, if Japan continues to normalize policies, the pressure to unwind carry trades will persist, making high-risk assets that rely on carry flows particularly sensitive.

Overall, this rate hike by the Bank of Japan marks a turning point, signaling further tightening of the global low-interest-rate environment. For crypto investors, it’s not just about Japan’s move alone but must be considered within the broader context of Federal Reserve policies and global liquidity changes. While short-term pressures are possible, the long-term outlook still depends on fundamentals—this principle applies everywhere.