The Bank of Japan opted to keep its benchmark interest rate steady at 0.75 percent after Tuesday’s monetary policy meeting, but a clear split emerged among policymakers. Three of the nine board members argued that an immediate rate hike would have been appropriate, marking the widest vote margin seen under Kazuo Ueda’s leadership.
Inflation forecast rises, growth outlook lowered
The Bank revised its outlook, announcing that core inflation in Japan is expected to reach 2.8 percent for the current fiscal year. Compared to its previous projection of 1 percent economic growth, the updated forecast now anticipates a more modest 0.5 percent increase. This adjustment was attributed to energy supply disruptions in the Strait of Hormuz and rising global energy costs, which have increased the pressure on Japan’s import-reliant economy.
In the wake of these changes, markets began pricing in a 74 percent probability of a rate hike at the next policy meeting on June 16. This sentiment lines up with the main expectations highlighted in Bloomberg News’ recent analysis.
Yen gains while bitcoin faces pressure
Rising odds of a rate hike pushed the yen higher against the US dollar, with the USD/JPY pair falling roughly 0.5 percent to 158.95. Elevated rate expectations typically bolster a currency, and the yen enjoyed renewed support as a result. In contrast, the bitcoin–Japanese yen (BTC/JPY) pair dropped 0.6 percent on the bitFlyer exchange, landing at 12.28 million yen. TradingView data showed that bitcoin also declined against the dollar.
Market participants assessing the signals for possible rate hikes voiced concerns about the future of long-standing “carry trade” strategies involving the yen. During a similar trend last August, bitcoin experienced a steep fall from $65,000 to $50,000 within one week.
Carry trade and latest market trends
Traditionally, the yen’s low interest rate has made it a popular funding currency in global finance, allowing investors to borrow cheaply in yen and seek higher returns abroad. However, when the yen strengthens, these positions are often unwound quickly, triggering sell-offs in riskier assets.
Recent data suggests that carry trade positions remain active. February’s market flows show that Japanese institutional investors continued to purchase US Treasury securities. As a result, Japan’s holdings of US treasuries climbed to $1.24 trillion, reaching their highest level since February 2022.
Co-founders of the LondonCryptoClub newsletter service drew attention to this trend with the following assessment:
“Japan remains the top foreign holder of US Treasury securities, having bought in 13 of the past 14 months. This highlights that Japanese investors are still seeking higher-yield opportunities. Rumors about widespread closure of carry trades don’t reflect reality; it’s misleading to comment on market shifts without fully understanding Japanese investor behavior.”
In summary, growing signals that the Bank of Japan could abandon its ultra-low rate policy are being closely watched across both currency and crypto markets. Nevertheless, current data indicates that Japanese investors are maintaining their risk appetite and holding their international positions.
