Bitcoin (BTC) Price Faces Potential Headwinds as Bank of Japan (BoJ) Rate Hike Looms

Most investors are keeping a close eye on President Trump's inauguration, scheduled for Jan. 20, which could be a pivotal event for bitcoin (BTC) and cryptocurrency prices.

But a few days later, there's another potential event that could impact markets: a rate hike by the Bank of Japan (BoJ).

According to a Bloomberg chart shared by X, the market is currently pricing in a 90% probability of a BoJ rate hike on Jan. 24.

Previously, a BoJ rate hike triggered turbulence in both traditional and digital asset markets. It was a key factor in the unwinding of the yen carry trade in early August, which caused bitcoin to plummet to $49,000. Traders are likely anticipating another round of selloffs this time.

The BoJ has maintained negative interest rates since 2016, but in 2024, it raised rates twice, from -0.1% to 0.25%. The implied rate going into the meeting is 0.45%, though this could change drastically as Japan is set to receive an inflation report the day before, on Jan. 23.

Headline inflation year-over-year currently stands at 2.9%, the highest since August. A hotter-than-expected inflation reading could stoke market fears and potentially lead to another round of the yen carry trade unwinding.

Despite the remarkable strength of the DXY index, which is currently above 109, indicating the highest level since November 2022, it has surged from 100 since the September low.

The DXY index is following a similar trajectory to Donald Trump's first presidential term, which saw a rally in the DXY leading into his inauguration and then fell considerably, giving risk assets a much-needed boost. The DXY index measures the value of the U.S. dollar against a basket of major foreign currencies.

The Japanese Yen is at its strongest level against the dollar since Dec. 16, at 156.