Former Bank of Japan (BOJ) board member Makoto Sakurai suggests that the BOJ may refrain from implementing another rate hike in 2024. Seamus Mac Gorain, JP Morgan’s head of global rates, concurs with this outlook. However, a different report indicates that 22 out of 34 economists anticipate an additional rate hike later this year.
In response to these predictions, crypto commentators argue that Bitcoin and other cryptocurrencies are generally unaffected by monetary policy decisions, unlike the equity market. However, the “portfolio balance channel” theory implies that changes in monetary policy could still influence the cryptocurrency market.
Japan’s Interest Rate Outlook and Market Reactions
Some analysts and commentators believe that Japan is unlikely to raise interest rates in 2024, as such a move could lead to a market meltdown. Former BOJ board member Makoto Sakurai recently stated, “They won’t be able to hike again, at least for the rest of the year. It’s a toss-up whether they can do one hike by next March.”
Maintaining a near-zero interest rate is seen as conventional for dealing effectively with inflation. The BOJ aims to keep inflation around 2%. Economists argue that a slightly higher cost of borrowing could be beneficial. Sakurai agrees that a 0.25% rate hike is necessary to normalize monetary policy but advises the BOJ to “wait and see for a while” before making further decisions. Meanwhile, the market critiques the timing of a potential rate hike.
Sakurai also pointed out that Japan’s economic conditions alone did not fully account for recent equity market volatility, suggesting that external factors, especially from the US, played a significant role. Previous reports highlighted that disappointing US payroll data, lower-than-expected earnings from major tech companies, and recession concerns contributed to market instability.
Seamus Mac Gorain, head of global rates at JPMorgan Asset Management, noted that while the BOJ could consider cutting rates, such actions would depend on the Federal Reserve’s policies and the US economic situation. If the US enters a recession, any BOJ rate hike might be delayed until 2025.
Market sentiment remains mixed, with about 22 out of 34 economists surveyed anticipating a rate increase before the end of 2024. However, traders are less confident, and the likelihood of a rate hike has decreased.
Bitcoin’s Role Amidst Global Market Turmoil
Following last week’s market turmoil, crypto advocates have been increasingly detaching Bitcoin from the equity markets, promoting it as a “way out” of central bank-driven sell-offs. Luke Martin, a notable crypto commentator, highlighted the situation with a tweet, noting the extreme market reaction to Japan’s minimal rate hike. Despite Japan’s small increase in rates, stocks experienced one of their largest sell-offs in decades, underscoring the dependency of the global financial system on central bank stimulus. Martin emphasized that Bitcoin ($BTC) represents a potential escape from this dependency.

Investment researcher Jim Bianco referenced the “portfolio balance channel” theory in a recent post, suggesting that disruptions in financial markets can have widespread effects. This theory implies that shifts in investment strategies, such as moving funds between stocks, bonds, and other assets, can impact various market sectors. While the theory does not explicitly address Bitcoin and the broader crypto market, the spillover effects are evident.
The theory argues that just as traditional investments like stocks and bonds are affected by changes in portfolio allocations, so too can cryptocurrencies. Consequently, Bitcoin’s recent price fluctuations and recovery seem influenced by broader market movements, highlighting the interconnectedness of financial markets.
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The global financial landscape is in disarray following the Bank of Japan's unexpected interest rate hike. This decision has set off a chain reaction, causing widespread market instability and significant losses across various sectors.
Japan's Nikkei 225 Index bore the brunt of the impact, experiencing its steepest decline since the early days of the COVID-19 pandemic. The index plummeted 5.9% upon the announcement, followed by an unprecedented 12.6% nosedive on Monday - the most severe single-day drop in its history.
The ripple effects of this financial earthquake were felt far beyond Japan's borders. Major indexes in South Korea and Turkey were forced to halt trading, and even Robinhood, the world's leading retail trading platform, suspended operations temporarily.
Cryptocurrency markets, often viewed as a hedge against traditional financial instability, were not immune to the chaos. Data from Coinglass revealed a staggering $1.23 billion in liquidations, with long positions in Bitcoin and Ethereum bearing the brunt of the losses.
As market participants grapple with the unfolding situation, concerns are mounting about potential long-term consequences for key players in the crypto industry. However, not all analysts view this turmoil as a harbinger of prolonged decline.
Tom Lee, a prominent figure at Fundstrat, characterizes the current market state as a "short and scary" episode rather than a sustained downtrend. Lee suggests keeping a close eye on the Volatility Index (VIX) as a potential indicator of market recovery. He also notes that the U.S. economy might demonstrate more resilience than expected, citing falling interest rates and robust consumer spending as positive factors.
While the situation remains fluid, Lee posits that the current market disruption stems more from the Japanese rate hike than from systemic issues within the U.S. financial system. If this assessment proves accurate, U.S. markets may bounce back swiftly once international conditions stabilize.
As investors and analysts alike attempt to navigate these turbulent waters, one thing is clear: the interconnectedness of global financial markets means that decisions made in one corner of the world can have far-reaching and sometimes unexpected consequences. Only time will tell how this latest episode of market volatility will ultimately play out.

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