The Bank of Japan's decision on monetary policy has heightened expectations of an interest rate increase by the end of the second quarter. Although the central bank maintained its benchmark interest rate at 0.75%, three board members voted in favor of a rate hike. This 6-3 split is the largest since Kazuo Ueda took office as governor, indicating a growing trend among policymakers to raise borrowing costs. The central bank also revised its forecast for core inflation to 2.8% for the current fiscal year and lowered its economic growth projections to 0.5%.
As a result, traders are now pricing in a 74% chance of a rate hike on June 16. The Japanese yen has risen, causing the dollar-yen pair to decline by nearly 0.5%.
The bitcoin-yen pair has also fallen by 0.6%. Trends in the Japanese yen are closely monitored due to its role as a funding currency, and sustained yen strength is often associated with risk aversion.
However, the latest market flow data suggests that yen-funded carry trades remain active, with Japan increasing its holdings of U.S. Treasury notes.