How Japan’s Gradual Hawkish Shift Is Testing Risk Assets and Global Markets

According to ChainCatcher, the Bank of Japan (BOJ) surprised markets on December 19 by raising its policy rate by 25 basis points to 0.75%, marking the highest level since 1995 and officially ending decades of ultra-easy monetary policy in Japan. This gradual hawkish shift reflects sustained inflationary pressures and stronger wage growth, fundamentally changing the macro backdrop for global risk assets, including equities and cryptocurrencies.

BOJ Governor Kazuo Ueda emphasized that future policy decisions will remain data-dependent, with close attention paid to economic growth, inflation trends, and financial market stability. This language leaves room for further tightening if conditions warrant. Market reactions, however, were relatively muted, as the rate hike had been widely anticipated. Following the announcement, the Japanese yen strengthened slightly, long-term Japanese government bond yields edged higher, the Nikkei 225 rose, and Bitcoin briefly climbed above the 87,000-dollar level, suggesting the move was largely priced in.

Global investors are now reassessing the broader implications of Japan’s policy normalization. For years, near-zero interest rates in Japan supported the yen carry trade, where investors borrowed cheaply in yen to invest in higher-yielding assets such as U.S. equities and crypto assets. As Japanese yields rise, this dynamic could gradually unwind, increasing global funding costs and reducing liquidity for risk assets. Analysts warn that continued tightening into 2026 could strengthen the yen further and encourage capital rotation away from speculative markets.

Historical patterns reinforce these concerns. Previous episodes of BOJ tightening have coincided with periods of heightened volatility and corrections in cryptocurrency markets. Some market observers argue that a sustained hawkish stance from Japan could accelerate risk-off sentiment, particularly if global liquidity conditions tighten simultaneously. Others counter that the December rate hike itself is less important than forward guidance, with markets now focused on the pace and ceiling of future rate increases.

Looking ahead, potential BOJ actions such as incremental rate hikes and a gradual reduction of its large ETF holdings could have significant long-term effects. If Japanese government bonds become more attractive to domestic investors, global capital flows may shift, influencing both equity valuations and crypto market trends. As monetary policy paths diverge globally, Japan’s transition toward normalization is likely to play a growing role in shaping asset allocation strategies in 2026 and beyond.

Overall, Japan’s move away from ultra-loose policy underscores the need for investors to closely monitor BOJ decisions alongside those of the Federal Reserve and the European Central Bank, as shifts in Japanese monetary policy may increasingly act as a catalyst for global market repricing.