There has been a rather heart-wrenching phenomenon these days: the Bank of Japan raised interest rates by 25 basis points on December 19, pushing the policy rate to 0.75%—the highest level in 30 years. Normally, a rate hike means the interest rate rises, money should flow into Japan, and the yen should appreciate. But reality strikes back directly—the yen against the dollar fell to a historic low.

To put it bluntly, the market is not buying it at all. Just look at Japan's current predicament: government debt has exceeded 240% of GDP, and the risks of fiscal deficits are everywhere. The Prime Minister is still shouting slogans like "Invest your money in me" at investment conferences, which sounds like policy tools are nearly exhausted. The power of interest rate hikes has also been discounted—although Japan's core CPI has surpassed 3%, everyone knows that this rate hike may not last long, and real interest rates are still negative. The result is continuous capital flight, and the depreciation of the yen is essentially the market voting with its feet.

This pressure has also transmitted along the chain to Bitcoin. After the announcement of the interest rate hike in Japan, Bitcoin fell directly from around $90,000 to below $86,000, with a daily decline of more than 5%. It seems that two unrelated things are actually tightly bound together through yen arbitrage trading.

For the past thirty years, institutional investors have been doing one thing: borrowing yen at almost zero cost, then converting it into dollars to buy high-yield assets such as US stocks, US bonds, and Bitcoin. With the Central Bank raising interest rates, the financing cost of yen increases, and these arbitrage positions need to be closed. Once closed, the buying pressure on these high-yield assets diminishes, and prices naturally follow suit. This is not a problem with Bitcoin itself; rather, it has been caught up in a reshuffling of macro liquidity.