The Bank of Japan's decision on monetary policy, announced on Tuesday, has heightened expectations of an increase in borrowing costs by the end of the second quarter. This development has had a positive impact on the yen, while bitcoin continues to face downward pressure. The central bank maintained its benchmark interest rate at 0.75%, in line with widespread expectations.
However, the decision was not unanimous, with three board members advocating for an immediate rate hike. The 6-3 vote split is the largest since Kazuo Ueda assumed the role of governor, indicating a growing inclination among policymakers to raise borrowing costs. The central bank also revised its forecast for core inflation to 2.8% for the current fiscal year and adjusted its economic growth projections downward to 0.5% from 1%.
This shift in stance is largely attributed to the disruptions in global energy prices caused by the conflict, which have contributed to inflationary pressures in energy-import-dependent economies like Japan. In response, 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 experienced a significant surge, causing the dollar-yen pair to decline by nearly 0.5% to 158.95. The bitcoin-yen pair listed on bitFlyer has also fallen by 0.6% to 12.28 million yen, consistent with the weakness in dollar-denominated prices.
Trends in the Japanese yen are closely monitored due to its historical role as a funding currency. Prolonged yen strength is often associated with risk aversion, as it can trigger the unwinding of carry trades. However, the latest available data on market flows suggests that yen-funded carry trades remain active, with Japan continuing to increase its holdings of U.S. Treasury notes.