The Bank of Japan's decision to maintain its benchmark interest rate at 0.75% was met with a split vote, as three members pushed for an immediate rate increase. This development has boosted expectations of a potential hike by the end of the second quarter, with the yen experiencing a notable surge and bitcoin facing continued pressure.
The central bank also revised its forecast for core inflation upwards to 2.8% for the current fiscal year, while lowering its economic growth projections to 0.5%. The markets have promptly priced in a 74% chance of a rate hike on June 16, aligning with the consensus among Bank of Japan observers. As a result, the Japanese yen has jumped, pushing the dollar-yen pair down, while the bitcoin-yen pair has fallen.
Trends in the yen are closely watched due to its role as a funding currency, and sustained yen strength is often associated with risk aversion. However, the latest market flow data suggests that yen-funded carry trades remain active, with Japan increasing its holdings of U.S. Treasury notes, indicating that the 'JPY carry unwind' trade may not be a significant concern.