The Bank of Japan's decision to maintain its benchmark interest rate at 0.75% was anticipated, but the 6-3 vote split indicated a notable shift in sentiment among policymakers. This division, the largest under Governor Kazuo Ueda, suggests a growing inclination towards raising borrowing costs.
The central bank also adjusted its forecast, predicting core inflation to reach 2.8% for the fiscal year and revising economic growth projections downward to 0.5%. The rationale for this hawkish stance is largely attributed to global energy price increases, fueled by disruptions in energy flows, which are contributing to inflationary pressures in energy-import-dependent economies like Japan. As a result, markets are now pricing in a 74% chance of a rate hike by June 16, aligning with the consensus among Bank of Japan watchers. The Japanese yen responded positively, rising and pushing the dollar-yen pair down by nearly 0.5%.
Conversely, the bitcoin-yen pair fell by 0.6%. Trends in the yen are closely monitored due to its role as a funding currency, with sustained strength often associated with risk aversion. This is because the prolonged period of ultra-low interest rates encouraged traders to borrow in yen and invest in higher-yielding assets abroad, potentially leading to the unwinding of carry trades. However, recent data suggests that yen-funded carry trades remain active, with Japan increasing its holdings of U.S.
Treasury notes, indicating continued investment in higher-yielding assets overseas.