Author: James, BlockTempo

The Bank of Japan will hold a monetary policy meeting from the 18th to the 19th, where nine members of the monetary committee will review whether to raise rates, adjusting the rate from 0.25% upwards. However, according to Reuters, five sources say that the Bank of Japan is inclined to keep rates unchanged this time because decision-makers want to spend more time examining overseas risks and clues about wage prospects for next year.

Reports indicate that there has not yet been a consensus within the Bank of Japan regarding the final decision, as some monetary committee members believe that Japan has met the conditions for a rate hike in December, but there are also members who think that the yen's rebound has eased price pressures, and the Bank of Japan is not in a hurry to raise rates.

Originally, according to a Reuters survey last month, more than half of economists expected the Bank of Japan to raise rates this month, with about 90% of respondents predicting that by the end of March next year, the Bank of Japan would raise rates to 0.5%. However, the market currently anticipates that the probability of a rate hike in December is now less than 30%.

Sources say that with moderate economic growth, steady wage increases, and inflation exceeding the 2% target for over two years, the Bank of Japan is increasingly convinced that the conditions for further rate hikes are gradually forming. The Bank of Japan may maintain its confidence in the economic outlook and continue to believe that consumption trends are growing moderately.

However, the urgency of raising rates is not high at the moment because the yen has recently rebounded, reducing inflationary pressures from raw material imports. This contrasts with the situation in July when rates were raised to 0.25%, at which time the yen depreciated rapidly, pushing up import prices and increasing the risk of inflation exceeding expectations.

The Fed is expected to cut rates by 25 basis points this month.

While Japan is inclined not to raise rates this month, the Fed will announce its latest rate decision at 2 AM Taiwan time on the 19th. Data released in the US on the 11th showed that the Consumer Price Index (CPI) for November increased by 0.3% month-on-month and 2.7% year-on-year, with the increase fully in line with market expectations. Although inflation data accelerated compared to last month, the market believes it is still insufficient to prevent the Fed from cutting rates at this meeting.

According to CME's FedWatch tool, the market expects a 98.6% chance that the Fed will cut rates by 25 basis points at next week's meeting.

However, as US inflation has risen for the second consecutive month, the Fed's rate decision may become more complicated, and the long-term trend of rate cuts may slow down, which means there may still be room for the attractiveness of yen arbitrage trades.

Is there still bullish potential in the cryptocurrency market in the short term?

Experts analyze that the current overall economic situation allows Bitcoin to maintain its arbitrage space against the yen, potentially returning to $100,000. If Japan continues not to raise rates and the US maintains the current uncertainty regarding long-term inflation, the cryptocurrency market still has bullish potential in the short term.

However, investors should still pay attention to the drastic changes in overall economic policies in both the US and Japan. As long as the arbitrage space disappears, the wave of yen arbitrage position closures seen in early August may happen again, impacting global financial markets once more.

The Bank of Japan decided to raise rates by 15 basis points at the end of July this year, and coupled with the Fed's preparation to cut rates at that time, this led to a surge in the yen, compressing the profit margins of the 'borrow low-yen, buy high-interest currency' arbitrage trades, resulting in a large number of investors closing their positions and a severe crash in global stock and cryptocurrency markets in early August.