On December 19, 2025, at 11:00 AM (Tokyo time), the Bank of Japan announced the end of its negative interest rate policy and a 25 basis point hike in the benchmark interest rate. Following the announcement, the global crypto market responded immediately—Bitcoin plummeted 8% within five minutes, Ethereum dropped even more sharply by 12%, and the Nikkei Index declined by 2.3% on the same day. Behind this intense market volatility is actually a long-anticipated liquidity test.

Many traders panicked when they saw the candlestick crash, but this decline was not a sudden black swan event; it was an inevitable result of long-standing contradictions in the Japanese economy. Let's look at three core data points: Japan's core CPI has exceeded the 2% target for 24 consecutive months, indicating persistent inflationary pressure; the yen has depreciated to historic lows, causing import costs to soar and increasing burdens on businesses and households; major global central banks have long entered a high-interest-rate era, while Japan has maintained negative interest rates for an extended period, leading to continuous capital outflows. These factors combined, the rate hike by the Bank of Japan was essentially a forced choice.

From a liquidity perspective, the massive yen arbitrage positions accumulated under the negative interest rate environment are rapidly being closed out. Funds borrowed at low-cost yen to invest in other assets are starting to withdraw, with the crypto market, as a risk asset, being the first to feel the impact. In the short term, this liquidity shock will continue to influence market rhythm, but based on historical experience, markets typically gradually digest such policy changes over weeks to months. The key still depends on the subsequent policy pace of various central banks and the actual market response.