IMF Sees One More Bank of Japan Rate Hike as Yen Carry Risks Loom
The IMF expects the Bank of Japan (BOJ) to raise interest rates once more as policy moves closer to neutral, while urging flexibility amid global uncertainty. IMF Japan mission chief Rahul Anand said Japan’s neutral rate is estimated at 1.1%–2.2%, with a midpoint of about 1.5%; the BOJ’s current 1.25% rate is already within that range.
Anand expects inflation to remain above 2% as energy prices stay high and companies pass on higher costs, before gradually returning to the IMF’s 2% target by the end of 2027. If another BOJ rate hike comes in late 2026 or early 2027, markets may price in the risk of yen carry trades unwinding. The article notes that Bitcoin fell more than 20% in the three days after a BOJ rate increase in December 2025, though that past move does not guarantee a repeat.
Bearish
The outlook is bearish for crypto in the near term because another Bank of Japan rate hike could strengthen the yen and make yen-funded carry trades less attractive. Traders may reduce leveraged positions across risk assets, including Bitcoin, if they anticipate capital repatriation or tighter global liquidity. The article cites a sharp historical reaction: Bitcoin fell more than 20% in the three days after the BOJ’s December 2025 rate increase. That episode is a cautionary comparison, not evidence that the same decline will recur.
The immediate effect may be limited because the IMF’s call is an expectation rather than a BOJ decision, and the timing discussed is late 2026 or early 2027. Markets may gradually price in the risk, with volatility particularly sensitive to BOJ guidance, yen movements, funding costs, and positioning in leveraged crypto markets. Over the longer term, a gradual and well-telegraphed policy shift could reduce the risk of a sudden shock; the net effect will also depend on global liquidity, US interest rates, and crypto-specific demand. Therefore, the bearish assessment reflects the potential for carry-trade unwinding and short-term risk reduction, rather than a certain or immediate downturn.