The Bank of Japan's recent monetary policy decision has heightened expectations of a possible interest rate increase by the end of the second quarter. This development has had a favorable impact on the yen, while bitcoin continues to face downward pressure.
The central bank maintained its benchmark interest rate at 0.75%, as anticipated, but the decision was not unanimous, with three board members advocating for an immediate rate hike. The 6-3 vote split, the largest since Kazuo Ueda took office as governor, suggests a growing inclination among policymakers to raise borrowing costs. The bank also revised its core inflation forecast upward to 2.8% for the current fiscal year and adjusted its economic growth projections downward to 0.5%. Market traders have swiftly factored in a 74% probability of a rate hike on June 16, aligning with the prevailing consensus among Bank of Japan observers.
The Japanese yen has responded positively, causing the dollar-yen pair to decline by nearly 0.5%. In contrast, the bitcoin-yen pair experienced a 0.6% drop. Trends in the yen are closely monitored due to its historical role as a funding currency. Prolonged yen strength often correlates with risk aversion, as it can trigger the unwinding of carry trades.
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.