Alarm Raised: BOJ’s 25bp Rate Hike Imminent, U.S. Stocks and Crypto Facing a 2024-Style Flash Crash?

Original by Odaily Planet Daily (@OdailyChina)

Author: Qin Xiaofeng (@QinXiaofeng 888 )

According to Nikkei, the Bank of Japan (BoJ) is expected to raise its short-term policy rate from 0.75% to 1.0% at its monetary policy meeting on June 15-16, marking the highest policy rate level since 1995. Currently, the market prices in a very high probability of a rate hike, with the probability of a 25bp hike on PolyMarket surging from 25% in early April to 98%.

With the BOJ rate hike imminent, a large number of investors engaged in yen carry trades may be forced to sell overseas assets, convert back to yen, and repay loans, triggering a chain reaction that could amplify volatility in global risk assets—the flash crash in August 2024 being a prime example. At that time, the yen's sharp rise led to a short-term global stock market slump, with Bitcoin plunging nearly $20,000 in a single day, a maximum drop of 15%.

Odaily Planet Daily will analyze the macro background and transmission mechanism of the BOJ's rate hike, and focus on assessing the risk impact on AI tech stocks and cryptocurrencies for readers' reference.

1. Inflation Risk Drives the BOJ's Rate Hike

Over the past two years, hawkish voices within the BOJ have grown stronger, eventually leading to the end of its 17-year negative interest rate policy in March 2024, raising the policy rate from -0.1% to a range of 0% to 0.1%, marking the first rate hike in this cycle. In July 2024, the BOJ raised rates again by 15bp to 0.25% and announced a gradual balance sheet reduction; in January and December 2025, it raised rates by 25bp each time, bringing the rate to 0.75%; the first three meetings of 2026 saw no changes. The following chart shows the BOJ's rate hike actions over its meetings:

After maintaining rates unchanged for half a year, why is the BOJ rushing into a new round of rate hikes? This hike is primarily driven by two factors.

First, energy shocks and imported inflationary pressures. With oil price volatility due to conflicts in the Middle East in the first half of the year, Japan, a country highly dependent on energy imports, has seen a significant rise in import costs. The Corporate Goods Price Index (CGPI) rose 6.3% year-on-year in May, the fastest pace since 2023, with petroleum products up 9.6% and utilities up 8.5%. The BOJ expects core CPI for fiscal 2026 to rise to 2.5-3.0%, well above the 2% target.

Second, the weak yen exacerbates imported inflation. The current USD/JPY exchange rate continues to hover near the 158-160 high level, approaching historically extreme weakness. The significant depreciation of the yen directly weakens the purchasing power of Japanese importers, leading to a substantial increase in the import costs of commodities like energy and raw materials, further pushing up domestic prices. Although Japan's Ministry of Finance has intervened in the foreign exchange market multiple times, the effects have been limited and difficult to sustain. This situation is forcing the BOJ to tighten monetary policy (i.e., raise rates) at its June meeting to prevent inflation expectations from spiraling out of control.

In a speech on June 3, BOJ Governor Kazuo Ueda clearly shifted towards an anti-inflation narrative, emphasizing that if upside price risks outweigh downside economic risks, the pros and cons of raising rates must be discussed.

Reuters, citing three sources familiar with the matter, reported that unless the Middle East conflict escalates sharply, the BOJ will raise rates in June and may slow the pace of bond tapering to maintain market stability. Bloomberg and ING among other institutions maintain a similar view and expect the BOJ to raise rates by a total of 50bp in 2026.

This series of shifts marks Japan's transition from the "global lender of last resort" to a normalizing central bank, posing a direct challenge to global assets that rely on cheap yen financing.

2. Yen Carry Trade Unwind, Liquidity Tightening Persists

The Bank of Japan has long maintained ultra-loose monetary policy, and the yen carry trade has been a significant component of global liquidity over the past decade or more. Investors borrow yen at near-zero interest rates to invest in high-yield assets like US stocks, tech stocks, emerging markets, and cryptocurrencies, earning interest differentials and capital gains.

The BOJ's current rate hike will directly increase the cost of yen financing and may trigger yen appreciation (USD/JPY decline), forcing leveraged investors to unwind positions, creating a positive feedback loop: Yen appreciation increases exchange loss → Financing costs rise → Investors are forced to deleverage → Large-scale selling of risk assets → Asset prices fall further → More stop-loss orders are triggered → Unwinding pressure intensifies.

Historically, every signal of policy tightening by the BOJ has triggered significant market volatility.

On July 31, 2024, the BOJ raised rates by 15bp to 0.25% and announced a gradual balance sheet reduction. Combined with weak US employment data, this triggered severe global market turmoil. At that time, South Korea's two major indices (KOSPI and KOSDAQ) both plummeted and triggered circuit breakers; the Japanese stock market crashed, with the Nikkei 225 plunging 12.4% in a single day and cumulative weekly losses exceeding 20%, its worst performance since 1987; global stock markets fell in tandem, with US stocks and tech stocks adjusting simultaneously and the VIX volatility index surging. Crypto was also severely impacted, with Bitcoin and ETH plummeting over 30% within a week, and leverage liquidations surged.

According to estimates by Morgan Stanley, although a significant number of positions have been gradually unwound since 2024, there are still approximately $500 billion in outstanding yen-financed positions in the market. While the market has partially priced in some of these risks, these positions still pose a significant latent risk. Morgan Stanley warns that if the yen appreciates rapidly, it could trigger a cascading unwinding during periods of thin liquidity, severely impacting high-leverage assets.

Dubravko Lakos-Bujas, Head of Global Market Strategy at J.P. Morgan, along with foreign exchange strategist Meera Chandan, both point out that the policy divergence between the BOJ and the Federal Reserve will exacerbate the instability of carry trade unwinding, potentially leading to a revaluation of global risk assets.

3. Global Risk Assets Hit; US Stocks and Crypto Spared None

The AI-driven tech boom was the main theme of the US stock market in the first half of 2026, with chip stocks like Nvidia and Broadcom, along with hyperscale cloud service providers, leading the Nasdaq to repeated record highs.

However, entering June, the market experienced a significant rotation and pullback. Notably, on June 5, the US stock market saw its sharpest single-day correction of 2026. The Nasdaq fell sharply by 4.18%, its largest single-day drop since April 2025; the S&P 500 dropped 2.64%, ending a nine-week winning streak; the Dow Jones fell 1.35%, and the Philadelphia Semiconductor Index plunged over 10%, with AI core stocks like Nvidia, Broadcom, Micron, and Marvell leading the decline. (Recommended reading: "Nasdaq Drops 4.2% in a Day; 'Black Friday' Pops the US Stock Bubble?")

The US stock pullback was influenced by both macro-level geopolitical tensions and uncertainty in Federal Reserve policy, but a factor that cannot be ignored is the potential impact of the BOJ's rate hike.

First, tightening liquidity will directly hit high-valuation growth stocks. AI companies have massive capital expenditure requirements and are highly dependent on cheap financing. The unwinding of yen carry trades will reduce the inflow of global risk-on capital, with high-beta tech stocks bearing the brunt. Semiconductor leaders like Nvidia and Broadcom, as well as hyperscalers like Meta and Microsoft, possess high valuation sensitivity and are highly susceptible to selling pressure. Investing.com analysis points out that the high-valuation growth sector is most sensitive to changes in global liquidity, and once carry unwinding begins, rapid deleveraging often follows.

Second, rising energy costs will significantly compress AI profit margins. Conflicts in the Middle East driving up oil prices lead to a substantial increase in electricity and cooling costs for data centers. Combined with the BOJ rate hike, this creates a "stagflationary" macro environment that severely tests the sustainability of the AI business model.

In his latest article "Reality Test", BitMex founder Arthur Hayes explicitly warns, "Energy reality is testing the market's current 'dreaming' state." High oil prices not only raise operating costs but may also slow down corporate token usage growth, further dampening expectations for AI-related revenues.

Finally, there is the supply shock from mega IPOs and political/regulatory risks. Giants like SpaceX, Anthropic, and OpenAI plan to go public intensively in the second half of 2026, with valuations often at hundreds of times sales. The unlocking of lock-up periods will bring enormous supply pressure. At the same time, Trump might turn against AI for midterm elections, increasing regulatory uncertainty.

Cryptocurrencies, as global high-beta risk assets, face an even more challenging outlook. On one hand, the BOJ rate hike increases financing costs, directly raising the cost of global leveraged trading and forcing large-scale unwinding of crypto leverage positions. On the other hand, in competing for liquidity with AI, AI capital expenditures have already absorbed substantial market funds, leaving crypto lagging behind; the BOJ's action will further tighten marginal liquidity.

Yahoo Finance analyst Lockridge Okoth stated that a 98% probability of a rate hike could trigger the next liquidity shock for Bitcoin. Investing.com analysis points out that yen appreciation and BTC weakness often move in lockstep, serving as a typical signal of rising global risk aversion.

In multiple analyses, Arthur Hayes has also emphasized that the dynamics of the yen carry trade remain a key variable affecting Bitcoin liquidity, reminding investors to be aware of short-term liquidity shocks triggered by policy signals. In recent articles, Arthur Hayes stressed the need to be wary of the combined impact of short-term energy costs and monetary policy risks; BTC/ETH may adjust in the short term along with risk assets, with their long-term trajectory dependent on the resumption of liquidity.

Conclusion:

The resurgence of concerns over a BOJ rate hike is not an isolated event but a signal of tightening global liquidity at the margin. This is especially true given the confluence of factors such as the current Middle East geopolitical conflicts driving up oil prices, AI capital expenditures consuming liquidity, and uncertainty in Federal Reserve policy, which further reduces the buffer space.

For investors, in the short term, global risk assets—especially high-leverage and high-valuation sectors (AI tech stocks and cryptocurrencies)—may face significant downward pressure, with volatility likely picking up markedly. High vigilance and attention to leverage risks are required.