How will the key interest rate decisions to be announced by the US, Japanese and British central banks affect Bitcoin?

This week, three major central banks hold policy meetings, and the results are expected to be at least somewhat different from each other.

The Bank of Japan will make its first decision on Wednesday (Tuesday evening US time), and analysts are divided over whether the central bank will raise its policy rate from the current 0%-0.1% or signal an upcoming hike. It is well known that Japan's inflation rate has been above the central bank's 2% target for some time, and the yen, despite recent gains, is still hovering near multi-decade lows against the dollar.

The Wall Street Journal also reported that the Bank of Japan believes that tightening monetary policy could boost Japan's weak consumption because higher interest rates would further boost the yen and reduce the prices of key imports such as gasoline and food.

Next up is the Federal Reserve’s decision on Wednesday afternoon (US time). While few expect the Fed to cut the federal funds rate for the first time since 2020, almost everyone expects the Fed to indicate that it expects to cut rates at its next meeting in mid-September.

In fact, according to the CME's FedWatch, there is now a 100% chance of a rate cut in September, and a 12% chance that the Fed will cut by 50 basis points (rather than the usual 25 basis points).

The Bank of England will announce its policy decision early Thursday afternoon, with economists and interest rate markets roughly evenly split on whether the central bank will ease policy for the first time in several years. More certainly, even if the BoE does cut rates, it is likely to signal a very cautious approach, signaling to markets that a series of easing measures should not be expected.

What does this mean for Bitcoin?

Unless something unexpected happens, such as the Federal Reserve signaling a September rate cut isn’t a sure thing, central bank news this week may not have much of an impact on Bitcoin (BTC) prices.

But in the long run, at least modest rate cuts by all major central banks, with the exception of the Bank of Japan, appear to be the new normal. In addition to moves by the Fed and the Bank of England, the European Central Bank cut its policy rate earlier this summer, and the Bank of Canada has cut rates twice in the past few months.

All else being equal, loose monetary policy tends to be good for risk assets like Bitcoin. However, markets tend to anticipate, and while Bitcoin’s 56% year-to-date gain is often attributed primarily to demand for U.S. spot ETFs, at least some of the gains may be due to expectations that Western monetary policy is about to enter an easing cycle after years of a tightening trend.