At its policy meeting on Tuesday, the Bank of Japan (BoJ) decided to keep its key interest rate steady at 0.75 percent. However, the decision revealed deeper divisions within the board, with three out of nine members favoring an immediate rate hike. This marked the largest voting split seen under Governor Kazuo Ueda’s leadership.
Inflation forecast raised, growth outlook cut
The central bank revised its projection for core inflation in Japan, now expecting it to reach 2.8 percent for the current fiscal year. Meanwhile, its outlook for economic growth was slashed from an earlier 1 percent to only 0.5 percent. This adjustment was mainly driven by disruptions to energy flows through the Strait of Hormuz caused by conflict, as well as rising global energy prices, which have weighed heavily on Japan’s import-dependent economy.
In response to these announcements, markets began pricing in a 74 percent chance of a rate increase at the BoJ’s next meeting on June 16. This figure closely aligns with forecasts highlighted by Bloomberg News analysts.
Yen gains ground as bitcoin faces renewed pressure
Heightened expectations of an interest rate hike gave the Japanese yen a boost against the US dollar; the USD/JPY pair fell about 0.5 percent to 158.95. Higher rate prospects typically lend support to a country’s currency, making the yen a notable outperformer in this scenario. On the other hand, the bitcoin–Japanese yen (BTC/JPY) pair dropped by 0.6 percent on the bitFlyer exchange to 12.28 million yen. According to data from TradingView, bitcoin also posted losses in dollar terms during the same period.
Market participants reviewing signals of a rate hike expressed concerns over the fate of long-standing “carry trade” strategies involving the yen. During a similar shift last August, bitcoin plunged from $65,000 to $50,000 in just one week.
Carry trade and current market trends
Traditionally, the Japanese yen has served as a key funding currency in the global markets due to its persistently low interest rates. Investors often borrow at low yen rates to seek higher returns overseas. But when the yen starts to appreciate, these positions are rapidly unwound, creating selling pressure on riskier assets.
Recent data suggests that carry trade activity remains significant. Market flows from February indicate that Japanese institutions continued to buy US Treasury securities. Japan’s holdings of US Treasuries climbed to a total of $1.24 trillion, its highest since February 2022.
Founders of the newsletter service LondonCryptoClub highlighted the situation as follows:
“Japan remains the largest foreign holder of US Treasuries, having bought in 13 of the last 14 months. This clearly shows that Japanese investors are still seeking high-yield opportunities. The much-rumored exit from carry trades isn’t happening; it would be misleading to comment on investor behavior without understanding the Japanese position.”
In summary, early signals of a potential shift away from ultra-loose policy by the Bank of Japan are being watched closely across currency and crypto markets. However, current evidence suggests Japanese investors are maintaining their risk appetite and remain active in global assets.
