The Bank of Japan's decision on monetary policy has heightened expectations of a potential interest rate hike by the end of the second quarter. The yen has responded positively, while bitcoin continues to face downward pressure. Although the central bank maintained its benchmark interest rate at 0.75%, the 6-3 vote split indicates a growing inclination towards raising borrowing costs among policymakers.
The Bank of Japan has also revised its core inflation forecast upwards to 2.8% and lowered its economic growth projections to 0.5%. This shift in stance is largely attributed to global energy price increases and their impact on energy-import-dependent economies like Japan. Traders have promptly factored in a 74% chance of a rate hike in June, aligning with the consensus among Bank of Japan observers.
The Japanese yen has jumped, causing the dollar-yen pair to decline nearly 0.5%, while the bitcoin-yen pair has fallen by 0.6%. Trends in the yen are closely monitored due to its role as a funding currency, and sustained yen strength is often associated with risk aversion.
This could potentially trigger the unwinding of carry trades, which has previously weighed on global risk assets. However, recent market flow data suggests that yen-funded carry trades remain active, with Japan increasing its holdings of U.S. Treasury notes.