The Bank of Japan's recent monetary policy decision has bolstered expectations of a potential interest rate hike by the end of the second quarter, with the yen experiencing a boost and bitcoin facing downward pressure. Although the central bank maintained its benchmark interest rate at 0.75%, the decision was not unanimous, with three board members advocating for an immediate rate increase.
The 6-3 vote split, the largest since Kazuo Ueda became governor, indicates a growing inclination among policymakers to raise borrowing costs. The central bank also revised its core inflation forecast to 2.8% for the current fiscal year and lowered its economic growth projections to 0.5%.
This shift is largely attributed to global energy price increases and inflationary pressures in energy-import-dependent economies like Japan. As a result, traders have priced 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 decline by nearly 0.5%, while the bitcoin-yen pair has fallen by 0.6%. The yen's strength is closely monitored due to its role as a funding currency, and sustained yen strength is often associated with risk aversion.
However, recent data on market flows suggests that yen-funded carry trades remain active, with Japan increasing its holdings of U.S. Treasury notes. This has led some experts to dismiss concerns about a potential yen carry trade unwind-driven global risk aversion.