Central Bank of Japan Likely to Defer Interest Spikes to Next Year

A former Bank of Japan (BOJ) official has suggested that the central bank will likely postpone any further interest rate hikes until next year, prioritizing market stability in the near term.

Former BOJ board member Makoto Sakurai indicated on Friday that additional rate increases are unlikely for the remainder of the year, and it's uncertain whether the BOJ will be able to implement even a single hike by March 2025.

The BOJ's decision to raise its key interest rate to about 0.25% from a range of zero on July 31 marked the first increase in over a decade. This shift away from a zero interest rate policy initially strengthened the Japanese yen and led to a significant unwinding of "risk-on" yen carry trades. Consequently, traditional risk assets, including cryptocurrencies, were adversely affected.

The subsequent market turmoil resulted in Bitcoin recovering to trade above $58,000, as risk sentiment began to reset on Wall Street. Amidst this volatile environment, BOJ Deputy Governor Shinichi Uchida clarified that the bank would refrain from further rate hikes if market conditions remain unstable. Sakurai supported Uchida’s comments, emphasizing the importance of market stabilization.

“The BOJ is transitioning from excessive monetary easing to a more balanced approach,” Sakurai noted, adding that clear communication from BOJ Governor Kazuo Ueda about maintaining easing policies has been lacking.

As mentioned above, the cryptocurrency market experienced a severe downturn on August 5, leading to approximately $1.08 billion in liquidations. Major cryptocurrencies such as Bitcoin, Ether, and Solana suffered sharp price declines, exacerbated by a weakening global economy and a sudden drop in Japan’s stock market.

Data from Coinglass shows that nearly 300,000 traders faced liquidations during this period. Bitcoin’s price fell from around $65,000 to $50,000, while Ether dropped from approximately $2,760 to $2,172. Long positions in Bitcoin saw losses exceeding $315 million, while Ethereum traders faced $305 million in losses. The total liquidation losses across all crypto assets amounted to over $930 million for long positions and $163.45 million for short positions.

Amid this chaos, hackers exploited the market’s volatility. Funds linked to the August 2022 Nomad crypto bridge hack were used to purchase 16,892 Ether at lower prices, which were then laundered through the crypto mixer Tornado Cash.