The Bank of Japan's recent monetary policy decision has fueled expectations of a potential rate hike by the end of Q2, with the yen experiencing a boost and bitcoin facing continued pressure. The central bank maintained its benchmark interest rate at 0.75%, but the 6-3 vote split indicates a growing desire among policymakers to increase borrowing costs. The BoJ also revised its core inflation forecast to 2.8% and lowered economic growth projections to 0.5%.
Traders are now pricing in a 74% chance of a rate hike on June 16, which has led to a notable rise in the yen and a corresponding decline in the dollar-yen pair. The bitcoin-yen pair has also fallen, consistent with the weakness in dollar-denominated prices. The yen's strength is often associated with risk aversion, as its prolonged period of ultra-low interest rates has encouraged traders to borrow in yen and invest in higher-yielding assets abroad.
However, the latest market flow data suggests that yen-funded carry trades remain active, with Japan increasing its holdings of U.S. Treasury notes. This has led some experts to argue that concerns about a yen carry trade unwind-driven global risk aversion may be overstated.