The Bank of Japan's decision to maintain its benchmark interest rate at 0.75% was met with a notable dissent from three board members, who pushed for a rate hike. This split decision has led to a significant increase in expectations of a borrowing cost increase by the end of the second quarter.
As a result, the yen has strengthened, while bitcoin has come under pressure. The central bank also revised its forecast for core inflation upwards to 2.8% for the current fiscal year and lowered its economic growth projections to 0.5%. The markets have swiftly priced in a 74% chance of a rate hike in June, aligning with the consensus among Bank of Japan watchers.
The Japanese yen's rise has pushed the dollar-yen pair down, and the bitcoin-yen pair has also fallen. Trends in the yen are closely monitored due to its role as a funding currency, and sustained strength is often associated with risk aversion. However, the latest 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 to question the likelihood of a yen carry trade unwind-driven global risk aversion.