Could Bitcoin’s Uncertainty Lead to a Slump in Asian Stocks? BOJ Hike Discussions Spark Concern

Bitcoin traded slightly higher in Asia as Japan’s Nikkei index fell over 2%. This comes amid talks that the Bank of Japan (BOJ), the last bastion of ultra-low interest rates, could soon fall.

At the time of writing, the leading cryptocurrency by market value was changing hands at $69,000, up over 1% on a 24-hour basis. Prices briefly hit a low of $67,120 earlier in the day, having set a new record high above $70,000 on Friday. The CoinDesk 20 Index, a broader market gauge, was down 2.17%.

Asian equity indices slipped, with Japan’s Nikkei and Australia’s ASX falling 2% after a Reuters report said the Bank of Japan could lift the benchmark interest rate above zero this month. There are growing expectations that BOJ will take this step at its March 18-19 meeting, according to Bloomberg.

This would mark the BOJ’s first rate hike since 2007. The Reuters report also stated that the bank may end its bond-buying program, which has been in place since the negative interest rate policy was implemented.

Analysts have long warned that the Bank of Japan is a major source of uncertainty for both traditional and crypto markets. Since 2016, the BOJ’s negative interest rate policy (NIRP) and bond-buying program have been a major factor in keeping global government bond yields low, thus supporting asset prices. Despite other central banks raising rates to combat inflation, the BOJ maintained its pro-liquidity stance for the past two years.

However, increased domestic inflation and the possibility of wage hikes have put pressure on the BOJ to raise rates. The Japanese yen has responded with a 2% weekly gain against the U.S. dollar.

If the BOJ does unwind its pro-liquidity stance and the yen continues to strengthen, the carry trade – where investors borrow low-interest fiat (such as the yen) to invest in high-yielding assets – could be at risk. This carry trade may have played a significant role in the ongoing risk-on rally in financial markets, including technology stocks and cryptocurrencies. In previous bull runs, bitcoin’s rise to record highs has coincided with the outperformance of rate-sensitive technology stocks relative to the broader U.S. equity market. In January, the ratio between Wall Street’s tech-heavy index, Nasdaq (NDX), and the S&P 500 (SPX) reached record highs.

Despite these potential risks, the consensus in the crypto market is that any dip in bitcoin’s price is likely to be short-lived, with prices expected to rally into six figures in the coming months.

In summary, Bitcoin is currently trading slightly higher in Asia as the Bank of Japan weighs the possibility of an interest rate hike and ending its bond-buying program. This news has led to a decline in Asian equity indices and a strengthening of the Japanese yen. While this could potentially jeopardize the risky assets market, such as technology stocks and cryptocurrencies, the market consensus is that any dip in bitcoin’s price will be temporary and a rally into six figures is still expected.