The Bank of Japan's decision to maintain its benchmark interest rate at 0.75% was anticipated, but the 6-3 split vote in favor of keeping rates unchanged has sparked expectations of a potential rate hike by the end of the second quarter. The yen has responded positively to the news, while bitcoin continues to face downward pressure. The central bank also revised its forecast for core inflation to 2.8% for the current fiscal year and lowered its economic growth projections to 0.5%. The likelihood of a rate hike in June is now priced in by markets, with a 74% chance of an increase on June 16.
The strengthening yen has significant implications, as it may trigger a carry trade unwind, leading to risk aversion and potentially impacting global risk assets. However, recent 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 are unfounded and that investors should ignore such claims.