The Bank of Japan's recent monetary policy decision has heightened expectations of a borrowing cost increase by the end of the second quarter. Although the benchmark interest rate remained unchanged at 0.75%, the 6-3 vote split indicates a growing inclination among policymakers to raise borrowing costs. The central bank also revised its core inflation forecast upward to 2.8% for the current fiscal year and lowered economic growth projections to 0.5%.
The prospect of a rate hike in June has been priced in by markets, with traders anticipating a 74% chance of such a move. This development has led to a notable increase in the value of the yen, which in turn has put downward pressure on bitcoin. The strengthening of the yen may trigger risk aversion and potentially unwind carry trades, although recent data suggests that yen-funded carry trades remain active, with Japan continuing to increase its holdings of U.S.
Treasury notes.