Inflation breaks the 2% red line, and BTC may be hit by double interest rate hikes in December

According to Woofun AI, Japan's core inflation rate broke through the 2% target red line in September, directly triggering market concerns about two intensive interest rate hikes by the world's major central banks in December. The already weak BTC price is facing new downward pressure. This deterioration in macro-fundamentals has made the cryptocurrency market's liquidity expectations before the end of the year extremely weak.

Judging from the specific structure of the inflation data, the core CPI after excluding fresh food climbed to 2.1% from 1.7% in August. This is the first time in nine months that this indicator has surpassed the 2% target set by the Bank of Japan (BOJ);

At the same time, the relevant indicators excluding fuel prices also rose from 1.9% to 2.4%. The commodity sector showed a fragmented trend. Overall commodity prices rose 2.8%, up from 2.6% in August, but rice prices fell sharply by 20.6%; the inflation rate in the service sector rose from 1.2% to 1.5%. These microdata will be taken into account by the BOJ at a two-day policy meeting ending on October 30 and used to adjust the forecast values. Looking back at the recent policy path, the BOJ raised the policy interest rate to 1.25% in September, the highest level in 31 years. According to various media surveys, analysts generally expect interest rates to rise further to 1.50% in December, and the final peak may reach 1.75% or 2%. Marcel Tilliant, head of the Asia Pacific region at Capital Economics, pointed out that there is currently little evidence that austerity policies have effectively slowed economic growth, so the final peak of policy interest rates is likely to be higher than the expected 2%.

Although the BOJ is likely to keep current interest rates unchanged at next week's meeting, its forward-looking guidance on future interest rate hikes will be a key variable affecting market sentiment.

According to data compiled by Woofun AI, expectations for interest rate hikes on the Federal Reserve (Fed) side are just as strong. According to FedWatch data from the Chicago Mercantile Exchange (CME), the probability that the Fed will raise the interest rate target by December 9 is as high as 80.5%; the probability of taking action on October 28 is 7.2%, which is a significant decrease from 55.4% last month. The BOJ, for its part, is scheduled to meet on December 17 and 18 to make decisions. The policy trends of these two central banks will profoundly influence the BTC price through the yen arbitrage trading mechanism. Investors who borrow yen for high-risk investments tend to sell their positions when Japanese interest rates rise, putting pressure on the cryptocurrency market; the Fed's interest rate hike may partially offset this pressure by supporting the US dollar.

If the interest rate hikes between the two central banks are similar, the spread between the US and Japan remains basically unchanged, and investors' motivation to cancel their arbitrage trading positions will weaken. Historical data shows that after BOJ raised interest rates to 0.25% in July 2024, the BTC price fell from about $70,000 to $49,000; however, until interest rates rose again in September, the BTC price remained stable, and Japanese assets fell. Currently, BTC is in a more vulnerable position, trading at $81,293 at press time, falling 3.16% in 24 hours, with a cumulative decline of 5.6% over the past month. It peaked above $86,000 in early October, but the rebound since October 9 has failed to break through the $84,000 mark.

If the BOJ's forward-looking guidance issued on October 30 takes a hawkish stance, BTC will face a smaller buffer. As the December interest rate hike window for the two central banks approaches, the logic of tightening macro-liquidity will shift from expectations to reality, and the market needs to be wary of the ripple effects caused by the closing of Japanese yen arbitrage transactions. Following the impact of the July 2024 rate hike, BTC is once again facing a systemic risk test brought about by a shift in Japanese monetary policy.