XRP Today's News: Bank of Japan's rate hike panic strikes, ETF frantically absorbs 970 million to stabilize the market

XRP falls below the $2 psychological level. Bank of Japan Governor Ueda Fumio hinted last week that interest rates will soon be raised to 0.75%. Economists expect a 25 basis point hike on Friday, December 19, which could narrow the interest rate differential and trigger unwinding of yen arbitrage trades. However, the US XRP spot ETF market has shown remarkable resilience, with net inflows for 19 consecutive trading days as of December 12, totaling $974.5 million.

Yen Arbitrage Unwinding Threats Short-Term XRP Trend

The shift in BOJ monetary policy is the core risk factor in today’s XRP news. In July 2024, the BOJ reduced Japanese government bond (JGB) purchases and unexpectedly raised rates to 0.5%, tightening monetary policy just as the Fed adopted a dovish stance, sparking a wave of yen arbitrage unwinding. At that time, XRP’s price plummeted from $0.6591 on July 31, 2024, to $0.4320 on August 5, a 34.5% drop. But this sell-off lasted only a few days, and XRP regained the $0.6 level by August 7.

Now, history may repeat. Economists expect the BOJ to raise rates by 25 basis points to 0.75% on Friday, December 19, following last week’s 25 basis point rate cut by the Fed, reducing the yen-dollar interest rate differential. The narrowing spread diminishes the profitability of yen arbitrage trades, prompting traders to unwind risk assets and repay yen loans. Last week, the 10-year Japanese government bond yield rose to its highest level since April 2007, intensifying market fears of unwinding.

A more critical uncertainty is the BOJ’s neutral interest rate policy. The neutral rate is where monetary policy is neither accommodative nor restrictive. The BOJ may announce its neutral rate target on December 19. The higher the neutral rate, the larger the rate hike needed, and the smaller the US-Japan rate differential, further compressing yen arbitrage space. The inverse relationship between the 10-year JGB yield and XRP price highlights this risk.

However, even if the BOJ raises rates to 0.75%, yen arbitrage remains profitable, albeit less attractive. If the neutral rate is below 1.5% to 2%, the impact of rate hikes may be short-lived. The rapid rebound in August 2024 proves that as long as rate increases are moderate and not accompanied by aggressive tightening signals, markets can digest the shocks within days.

19 Consecutive Days of ETF Inflows Provide Solid Support

While speculation about yen arbitrage impacts market sentiment, strong demand for XRP spot ETFs limited Sunday’s decline. The most notable point in today’s XRP news is the continuous inflow of institutional funds. As of the week ending Friday, December 12, the US XRP spot ETF saw a net inflow of $87.46 million. The 19 consecutive days of inflows have brought the total since launch to $974.5 million, highlighting robust institutional demand.

This persistent inflow is rare. Amid broad market pressure and intermittent outflows from Bitcoin and Ethereum ETFs, XRP ETFs continue to see daily net inflows, indicating independent institutional interest in XRP. This demand is not short-term speculation but strategic positioning based on XRP’s real-world utility in cross-border payments and improving regulatory outlook.

Three Major Drivers of Institutional Demand for XRP

Bank License Breakthrough: The OCC conditionally approved Ripple’s US national bank charter, enabling RLUSD stablecoin to be converted into XRP for cross-border payments.

Legislative Progress: The Blockchain Association CEO expects the Market Structure Bill to be introduced in the Senate in Q1, clarifying regulatory rules and removing obstacles for institutions.

Practical Value Enhancement: Institutions adopting RLUSD for FX bridging and liquidity operations directly increase XRP’s real demand.

Last week, the OCC conditionally approved Ripple’s US national bank charter, another major positive for XRP today. This license allows Ripple to provide regulated custody and payment services within the US, significantly enhancing its compliance standing. More importantly, institutions using RLUSD stablecoin can convert it into XRP for FX bridging, liquidity, and cross-border payments, creating structural demand for XRP.

Technical and Fundamental Dynamics

(Source: Trading View)

On the technical side, XRP broke below the 50-day and 200-day EMAs on Sunday, signaling bearish momentum. Key support levels are at $1.9112 and $1.8239, with resistance at the $2 psychological level, the 50-day EMA at $2.2, and the 200-day EMA at $2.4478. On Monday morning, XRP rose 0.91%. Breaking above $2 could lead to tests of $2.2 and the 50-day moving average.

Despite the bearish technical signals, fundamentals are increasingly taking precedence. Blockchain Association CEO Summer Mersinger stated, “If things develop as expected, the Market Structure Bill could be introduced in the Senate in Q1 next year.” Clear US digital asset regulations would legitimize XRP, and a crypto-friendly regulatory environment would open doors for broader investor participation. The XRP spot ETF would benefit from this.

Overall, in the short term, XRP needs to reclaim the $2 level and break above the downtrend line to solidify a target of $2.35. If the Market Structure Bill passes and ETF inflows continue, $2.5 is within reach. Long-term, if Ripple’s ecosystem continues to expand, a $3 target is feasible. Downside risks include aggressive BOJ rate hikes, MSCI delisting digital asset companies, legislative rejection in the Senate, or ETF outflows.