The Bank of Japan's decision to maintain its benchmark interest rate at 0.75% was met with a split vote, as three members advocated for an immediate rate increase. This development has heightened expectations of a borrowing cost hike by the end of the second quarter, with the yen experiencing a notable surge.
In contrast, bitcoin continues to face downward pressure. The central bank also revised its forecast for core inflation to 2.8% for the current fiscal year and adjusted its economic growth projections to 0.5% from 1%. The reasoning behind the Bank of Japan's shift towards a more hawkish stance is largely attributed to disruptions in global energy prices, which have contributed to inflationary pressures in energy-import-dependent economies like Japan. As a result, traders have priced in a 74% chance of a rate hike on June 16, aligning with the consensus among Bank of Japan observers.
The Japanese yen's appreciation has pushed the dollar-yen pair down nearly 0.5%, while the bitcoin-yen pair has fallen by 0.6%. Trends in the Japanese yen are closely monitored due to its historical role as a funding currency, with sustained yen strength often associated with risk aversion.
However, recent data on market flows suggests that yen-funded carry trades remain active, which may mitigate concerns about a potential yen carry trade unwind-driven global risk aversion.