The Bank of Japan announced the end of its long-term negative interest rate policy and the start of rate hikes, triggering a chain reaction in the cryptocurrency market. Bitcoin responded with a decline, and Ethereum was unable to remain unaffected, leading the entire market into adjustment pressure. This "policy shift from the East" directly dismantled the trading ecosystem that relied on yen arbitrage profits.

**The Moment of Broken Dreams for Yen Arbitrage Traders**

During the previous easing cycle, Japan's ultra-low interest rate policy created a unique arbitrage window. Traders operated with a simple and efficient process:

First, borrow yen at near-zero cost. Second, exchange yen for USD or other currencies and invest in high-yield sectors like US stocks or crypto assets. Third, wait for interest rate differentials to generate profits — this is the so-called "lying and earning" logic.

However, Japan's rate hike decision shattered this dream. Borrowing costs instantly rose, sharply compressing the arbitrage space. More critically, many traders were forced to close positions, selling assets like Bitcoin and Ethereum to repay debts by flowing back into the yen market. This series of passive sell-offs directly drained market liquidity, making it inevitable for crypto prices to come under downward pressure.

**Market Domino Effect**

The impact of Japan's rate hike is not limited to the yen arbitrage circle. It triggers the sensitive nerves of the entire crypto market. Once large-scale liquidity exits, price discovery mechanisms fail, and the market is prone to falling into a self-reinforcing downward spiral. Risk assets are the first to be affected, and cryptocurrencies are precisely in that position.

What is even more noteworthy is that this reflects subtle changes in the global macro environment — shifting from easing to tightening policies are spreading. Japan is just the beginning; expectations about other central banks' policies are also adjusting, posing challenges to capital allocation seeking high yields.

In the short term, crypto assets may continue to face pressure. But in the long run, the rational return of the policy environment also offers opportunities for market re-pricing. The key is that traders need to understand the essence of this adjustment — a transition from yen convenience to policy normalization, rather than merely a market cycle fluctuation.