Yesterday, the crypto market was still in the joy of a slight rebound when the Bank of Japan suddenly announced a major news—raising interest rates by 25 basis points, with the benchmark rate increasing to 0.75%, a level not seen in nearly 30 years. Many newcomers immediately became uneasy and started asking what this means for the crypto world. Instead of panicking, it’s better to clarify the situation.

**Why is the Japanese Yen so special?**

To understand this impact, we need to first grasp the role of the yen in the global financial system. For a long time, the yen has been known as "cheap money." Borrowing in yen is extremely low-cost, and many large funds, institutions, and whales have used this strategy—borrowing yen and then investing in higher-yield markets like US stocks and cryptocurrencies. The profit comes from the interest rate differential, straightforward and crude. This operation is common among industry insiders, and we call it "arbitrage trading."

How critical is this money? To be honest, it’s quite significant. Part of the support for high-risk asset prices comes from these yen arbitrage funds. They operate quietly but have a considerable influence.

**What does the rate hike change?**

This time, the Bank of Japan’s rate hike directly disrupted this balance. The cost of borrowing increased, and the attractiveness of yen arbitrage disappeared. Those funds that previously used leverage in yen now face a tough choice—continue to gamble with high-cost money for higher returns, which is neither cost-effective nor safe. The result? Capital flow pressure. These funds may either withdraw from the crypto market or seek more stable investment destinations.

**But this doesn’t mean a big crash**

It’s important to clarify a core logic here: rate hikes themselves ≠ trend reversal. Many people tend to confuse these two concepts. A rate hike is a structural change; it alters the micro-dynamics of capital flows but doesn’t change the macro trend. If the mainstream monetary policy remains in an easing cycle, or if the fundamentals of risk assets continue to improve, then the short-term capital withdrawal pressure might just be a temporary shock, not a trend turning point.

Conversely, if all central banks worldwide are raising rates and risk assets are being re-priced across the board, then the situation is different. Currently, although the Federal Reserve maintains relatively high interest rates, its stance is softening. In this asymmetric policy environment, the pressure from yen rate hikes on the overall market might be exaggerated by rhetoric.

**Who is most affected?**

In the short term, traders and institutions relying on yen-denominated leverage will feel the pressure first. Especially hedge funds that borrow in yen for arbitrage—cost structures change instantly, and profit margins drop sharply. The most volatile periods in the crypto market are likely reactions from these types of funds.

But what about ordinary investors? The impact is more indirect. You might notice increased volatility due to changes in counterparties, but this kind of fluctuation is usually temporary.

**What to watch next?**

What truly matters is the subsequent policy responses and how the market adapts. If the Bank of Japan’s move is just the beginning and they continue to raise rates, then pressure will keep building. But if this is a relatively mild adjustment, the market will quickly digest the expectation. The resilience of the crypto market is actually stronger than most people think—it has endured many shocks and restructurings.

Don’t rush to conclusions, and don’t be scared by short-term negative news. True investors focus on long-term fundamentals rather than a single central bank policy adjustment.