While American investors focus on the Federal Reserve, a potentially bigger market-moving event is brewing 6,000 miles away. The Bank of Japan is expected to raise interest rates this week for the first time since January—and history suggests the reverberations could be felt in every asset class from stocks to crypto.

What's Happening in Tokyo

All 50 economists surveyed by Bloomberg expect the Bank of Japan to raise its benchmark rate to 0.75% at its policy meeting concluding December 19. That may sound trivial, but Japan's policy rate hasn't exceeded 0.5% since September 1995. This will be the highest rate in approximately 30 years.

BOJ Governor Kazuo Ueda has been signaling the move for weeks, noting that "the negative impact of U.S. tariffs on the Japanese economy has not been that apparent so far" and that conditions for a hike are forming. Japan's two-year government bond yield has already hit a 17-year high in anticipation.

Why American Investors Should Care

The real concern isn't Japanese monetary policy itself—it's the yen carry trade. For years, investors have borrowed cheaply in yen to invest in higher-yielding assets elsewhere, including U.S. stocks, bonds, and cryptocurrencies. This trade works beautifully when Japanese rates stay near zero and the yen stays weak.

Higher Japanese rates make that strategy less attractive and raise the risk of capital flowing back home to Japan. When that unwinding happens quickly, it creates forced selling across global markets.

The pattern has repeated throughout 2025:

  • March 2025: BOJ signals → Bitcoin drops 22%
  • July 2025: Rate hike → Risk assets fall 31%
  • December 1, 2025: Yen strengthens → Bitcoin slides from $92,000 to $83,832 in hours

Japan: The World's Largest Creditor

Here's a detail that often gets overlooked: Japan is the largest foreign holder of U.S. Treasury debt. Tighter Japanese monetary policy could drain global liquidity, strengthen the dollar, and put pressure on risk assets worldwide. Japanese investors repatriating capital don't just affect the yen—they affect Treasury yields, corporate bond spreads, and equity valuations globally.

What to Watch This Week

The BOJ's decision comes Thursday night U.S. time (Friday morning in Tokyo). Watch for:

  • The yen's movement against the dollar
  • Japanese government bond yields
  • Overnight moves in U.S. futures and Bitcoin
  • Any guidance on future rate hikes

The Bottom Line

Don't let the small absolute numbers fool you—a Japanese rate hike from 0.5% to 0.75% can move global markets more than a Fed decision precisely because it's so unexpected. If you're holding risk assets heading into Thursday, know that the BOJ could be the catalyst for the next leg down—or the trigger for a relief rally if they surprise with dovish guidance.