On December 5, the financial world was rocked by a bombshell—the Bank of Japan plans to raise interest rates at its policy meeting at the end of the month. Of course, that’s provided the economy doesn’t run into any major issues in the meantime and financial markets stay stable.

As soon as the news broke, the crypto community went wild.

This potential rate hike is a big deal. Japan’s policy rate would jump to its highest level since 1995—a level not seen in nearly thirty years. And the Bank of Japan isn’t making this decision on a whim; they’re seeing some signs of economic recovery at home. Despite global growth slowing and ongoing trade wars, Japan’s domestic consumption and investment data are ticking up.

But the key question is: what does this mean for cryptocurrencies?

First, it’s all about the money. As one of the world’s major economies, any shift in Japan’s monetary policy triggers a global reshuffling of capital. A rate hike means higher yields on Japanese assets, so funds that would have gone elsewhere could flow back—suddenly, Japanese government bonds and stocks look much more attractive. International investors wandering the crypto market may well pull out, putting downward pressure on crypto prices.

Even more concerning is the emotional contagion. With central banks around the world already out of sync—some still easing, others tightening—Japan suddenly starting a rate hike cycle would immediately raise fears that global monetary easing is coming to an end. This kind of panic spreads extremely quickly in the crypto space. As investors turn cautious, risk appetite drops, trading volumes shrink, and price volatility spikes—a classic chain reaction.

Now, everyone is watching the Bank of Japan’s next move. If this rate hike goes through, what’s the pace going forward? The market is holding its breath, waiting for answers.