Japan’s crypto market on edge: BOJ rate hike fears spark concerns

• Bank of Japan’s rate hikes could trigger new cryptocurrency market turmoil.
• Japan’s crypto market share declines as the Prime Minister’s departure looms.

Recent volatility in the global economy, especially in cryptocurrencies, has raised concerns about the effects of major financial decisions.

The Federal Reserve’s anticipated interest rate cuts have fueled concerns, with George Lagarias, chief economist at Forvis Mazars, warning that an aggressive Fed rate cut could pose significant risks to the market.

Bank of Japan’s rate hike decision

Compounding this uncertainty, Bank of Japan Governor Kazuo Ueda declared on the 3rd of September that the BOJ would continue raising interest rates if economic conditions align with their projections. 

Source: MartyParty/X

So for those unaware, on the 5th of August, Japan’s stock market experienced its most dramatic drop in 37 years, plummeting 12% in a single day.

This crash was partly due to the “carry trade” strategy, where investors leveraged Japan’s low rates to borrow yen to purchase lucrative US assets.

The ripple effects were severe, resulting in tech giants like Apple and Nvidia seeing significant declines, but the crypto market was hit hardest, facing its largest single-day drop since 2023.

Additionally, Bitcoin [BTC] and Ethereum [ETH] suffered double-digit losses, while altcoins like Solana and Dogecoin saw declines of up to 30%.

This massive sell-off resulted in approximately $1.14 billion in liquidations and erased nearly $600 billion from the market cap. 

Hence, the Bank of Japan’s potential decision to raise interest rates has once again intensified concerns of another round of turmoil. 

Is Japan’s crypto market on a decline?

That being said, in a recent session with Liberal Democratic Party officials, Genki Oda, founder of SBI-owned BITPOINT and Chairman of the Japan Cryptocurrency Exchange Association, highlighted Japan’s diminishing role in the global crypto market.

Oda noted that Japan’s once-dominant share of Bitcoin trading volume, which reached around 50% from 2017 to 2018, has now dwindled to a mere fraction of the global total by 2024, signaling a significant decline in Japan’s crypto presence. 

“There are concerns that [Japan’s] strict tax rules will lead to a decline in the international competitiveness of Japanese web3-related businesses.” 

What to expect?

In light of these developments, Japan’s Financial Services Agency (FSA) submitted a request for tax reform on the 30th of August, which read, 

“Regarding the tax treatment of cryptocurrency transactions, cryptocurrency should be treated as a financial asset that should be an investment target for the public.” 

This could provide clearer regulatory guidelines, potentially reduce tax burdens, and encourage broader public investment in digital assets.

And now with Prime Minister Fumio Kishida’s recent announcement to step down in September, the trajectory of Japan’s economy and its impact on the cryptocurrency ecosystem become particularly intriguing. 

Source: Bloomberg/X

All in all, Kishida’s departure might usher in policy shifts, which may influence both the broader financial landscape and the regulatory environment for digital assets.