Bank of Japan signals "every few months" rate hikes, could liquidity shift to the cryptocurrency market and usher in a new change?

The summary of the Bank of Japan’s policy meeting opinions released on Monday shows that policymakers are debating the necessity of continuing to raise interest rates. Some members are calling for “timely” action to curb future inflation pressures.

This is not just talk; an unnamed member of the policy board explicitly stated that the Bank of Japan “should raise interest rates at a pace of once every few months.”

01 Policy Shift

At the meeting held from December 18 to 19, the Bank of Japan raised its policy interest rate from 0.5% to 0.75%. This marks a key step in Japan ending decades of ultra-loose monetary policy.

This rate hike brings interest rates to their highest level since 1995. Nevertheless, many members in the summary believe further rate increases are still necessary.

Japan’s real policy interest rate, adjusted for inflation, remains negative. One member bluntly stated that Japan’s real policy rate is “currently still at the lowest level globally.”

02 Hawkish Voices

The meeting summary clearly conveyed hawkish sentiments. One view is that “there is still a considerable distance to the neutral interest rate level.”

Therefore, the Bank of Japan “should currently raise interest rates at a pace of once every few months.”

Another perspective directly links the yen’s weakness and rising long-term interest rates, partly attributed to the Bank of Japan’s policy rate being “too low relative to inflation.” It argues that “timely increases in policy rates can suppress future inflation pressures and help lower long-term interest rates.”

03 Market Reaction

Following this policy signal, forex markets have experienced volatility. On Monday, the USD/JPY exchange rate slightly declined, trading around 156.20.

This marks a partial rebound of the yen after recent weakness, although the rebound remains fragile.

Market analysts note that the appeal of the yen as a traditional safe-haven asset is changing. The Bank of Japan’s slow exit from negative interest rates and macroeconomic headwinds facing Japan have weakened the yen’s attractiveness in this regard.

04 Impact on Cryptocurrency Markets

The monetary policies of major central banks worldwide have long been a significant factor influencing the cryptocurrency market. As the world’s third-largest economy, Japan’s policy shift could impact crypto assets in several ways.

As Japan’s interest rates rise, traditional financial markets may attract some funds seeking stable returns. Especially if the yen continues to strengthen, some speculative capital might withdraw from high-risk assets, including cryptocurrencies.

However, there are also views that, amid global economic growth uncertainties, the role of cryptocurrencies as alternative assets might be reassessed. Japan’s central bank actions are part of the broader global liquidity environment changes.

05 Global Policy Context

Japan’s actions occur against the backdrop of global monetary policy adjustments. The Federal Reserve has begun to cut rates from a twenty-year high, though Chair Powell remains cautious.

Unlike the US, Japan is gradually exiting its long-term ultra-loose policy. This policy divergence could influence global capital flows and risk asset pricing in the coming months.

The Bank of Japan’s policy normalization still faces challenges. Although nominal rates have increased, the real interest rate adjusted for inflation remains negative, indicating that there is still a long way to go in policy tightening.

A noteworthy point is that there are differing views within the Bank of Japan regarding the neutral interest rate. One policy board member explicitly stated, “Given the difficulty in determining the neutral interest rate, the Bank of Japan should not target a specific neutral rate but implement monetary policy flexibly.”

07 Outlook and Future Prospects

Markets are closely watching the Bank of Japan’s next move. The opinions in the summary suggest that some policymakers want to accelerate the normalization of monetary policy, especially considering the yen’s weakness and persistent inflation pressures.

One view even warns: “If the current financial environment persists, inflation pressures could continue. Therefore, delaying decisions until the next monetary policy meeting could pose significant risks.”

Meanwhile, global investors are assessing the long-term impact of this policy shift on various asset classes. Traditionally, Japan has been a major source of global liquidity, and its tightening of monetary policy could lead to changes in the global liquidity environment.

Future Outlook

Recent remarks by Japanese Finance Minister Shōzō Katō have granted Tokyo “discretion” in responding to yen fluctuations, subtly reinforcing the threat of direct market intervention.

Forex traders remain cautious, with yen long positions still “painful.” Although the Bank of Japan has signaled further rate hikes, the market seems to be waiting for more concrete actions.

With limited economic data releases in the last week of 2025, market focus is also shifting toward the policy directions of other major central banks.