The Bank of Japan's decision to maintain its benchmark interest rate at 0.75% was anticipated, but the 6-3 vote split in favor of keeping rates unchanged has significant implications. Three policymakers dissented, advocating for an immediate rate hike, marking the largest split since Kazuo Ueda became governor. This shift has led to increased expectations of a borrowing cost increase by the end of Q2. The central bank also revised its core inflation forecast to 2.8% for the fiscal year and lowered economic growth projections to 0.5%.
The yen has responded positively, with the dollar-yen pair decreasing by nearly 0.5%. In contrast, the bitcoin-yen pair fell by 0.6%. The potential for a rate hike in June, now priced in by markets, could lead to another episode of yen carry trade unwind-driven global risk aversion. However, recent data suggests that yen-funded carry trades remain active, with Japan increasing its holdings of U.S.
Treasury notes. Experts argue that the notion of a 'JPY carry unwind' trade is misguided, as Japanese investors continue to seek higher yields overseas.