The Bank of Japan's recent monetary policy decision has heightened expectations of a potential interest rate increase by the end of the second quarter. The yen has responded positively, while bitcoin continues to face downward pressure. The central bank maintained its benchmark interest rate at 0.75%, but the decision was not unanimous, with three board members advocating for an immediate rate hike. This 6–3 vote split marks the largest division since Kazuo Ueda became governor, indicating a growing inclination among policymakers to raise borrowing costs.
The Bank of Japan also revised its forecast for core inflation to 2.8% for the current fiscal year and lowered its economic growth projections to 0.5%. Markets have swiftly priced in a 74% chance of a rate hike on June 16, aligning with the consensus among Bank of Japan observers.
The Japanese yen has appreciated, causing the dollar-yen pair to decline by nearly 0.5%, while the bitcoin-yen pair has fallen by 0.6%. Trends in the Japanese yen are closely monitored due to its role as a funding currency, and sustained yen strength is often associated with risk aversion. The potential for a rate hike in June may reignite concerns about a yen carry trade unwind-driven global 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.