The Bank of Japan's recent monetary policy decision has heightened expectations of a potential increase in borrowing costs by the end of the second quarter. As a result, the yen has seen a surge, while bitcoin continues to face downward pressure. The central bank's decision to maintain its benchmark interest rate at 0.75% was not unanimous, with three board members pushing for an immediate rate hike. This 6-3 vote split is the largest since Kazuo Ueda took over as governor, indicating a growing number of policymakers are advocating for higher 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% from 1%. This shift towards a more hawkish stance is largely driven by the impact of global energy price increases on inflationary pressures in energy-import-dependent economies like Japan.
Traders have quickly factored in a 74% chance of a rate hike on June 16, aligning with the consensus among Bank of Japan watchers. The Japanese yen has risen, causing the dollar-yen pair to drop nearly 0.5% to 158.95.
The bitcoin-yen pair has also fallen by 0.6% to 12.28 million yen. 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. This is because the Bank of Japan's prolonged period of ultra-low interest rates has encouraged traders to borrow in yen and invest in higher-yielding assets abroad.
As a result, yen strength can trigger the unwinding of these carry trades, which could lead to global risk aversion. However, recent data on market flows suggests that yen-funded carry trades remain active, with Japan continuing to increase its holdings of U.S.
Treasury notes.