The recent turbulence witnessed in the global economy, particularly in the realm of digital currencies, has sparked worries regarding the repercussions of major financial determinations.
The expected decrease in the Federal Reserve’s interest rates has exacerbated concerns. George Lagarias, the lead economist at Forvis Mazars, cautioned that an aggressive rate reduction by the Fed could pose substantial risks to the market.
Decision on Bank of Japan’s Interest Rates
Adding to this atmosphere of uncertainty, Governor Kazuo Ueda of the Bank of Japan announced on September 3 that the BOJ would continue to raise interest rates if economic conditions correspond with their forecasts.
For those who may not be aware, on August 5, Japan’s stock market witnessed its most significant decline in 37 years, plunging by 12% in a single day.
This crash was partly a result of the “carry trade” tactic, where investors used Japan’s low rates to borrow yen and acquire profitable assets in the United States.
The consequences were severe, leading to major tech companies such as Apple and Nvidia experiencing substantial declines. However, the cryptocurrency market bore the brunt, facing its most significant one-day drop since 2023.
In addition, Bitcoin [BTC] and Ethereum [ETH] suffered considerable losses, while alternative coins like Solana and Dogecoin witnessed declines of up to 30%.
This extensive sell-off caused approximately $1.14 billion in liquidations and wiped out nearly $600 billion from the market capitalization.
Therefore, the potential decision by the Bank of Japan to increase interest rates has heightened concerns about another period of turmoil.
Decline in Japan’s Cryptocurrency Market?
Moreover, during a recent discussion with officials from the Liberal Democratic Party, Genki Oda, the founder of SBI-owned BITPOINT and Chairman of the Japan Cryptocurrency Exchange Association, underscored Japan’s diminishing influence in the global cryptocurrency market.
Oda highlighted that Japan’s once-dominant share of Bitcoin trading volume, which peaked at about 50% from 2017 to 2018, has now significantly reduced to a tiny fraction of the global total by 2024, indicating a notable decline in Japan’s cryptocurrency footprint.
“There are concerns that the stringent tax regulations in Japan might result in a downturn in the international competitiveness of Japanese web3-related enterprises.”
What Lies Ahead?
In view of these circumstances, Japan’s Financial Services Agency (FSA) put forth a proposal for tax reform on August 30, stating,
“Concerning the taxation of cryptocurrency transactions, digital assets should be considered as a financial asset that serves as an investment target for the general public.”
This move could offer clearer regulatory directives, potentially lower tax burdens, and stimulate wider public investment in digital assets.
Furthermore, with Prime Minister Fumio Kishida’s recent announcement to step down in September, the trajectory of Japan’s economy and its influence on the cryptocurrency sphere become particularly interesting.
Overall, Kishida’s exit could bring about policy adjustments that might impact both the broader financial arena and the regulatory framework for digital assets.