The Bank of Japan's decision on monetary policy has heightened expectations of a borrowing cost increase by the end of the second quarter. The yen has responded positively, while bitcoin remains under 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 is the largest since Kazuo Ueda became governor, indicating a growing push to raise borrowing costs. The central bank also revised its forecast for core inflation to 2.8% for the current fiscal year and lowered economic growth projections to 0.5%.
Markets 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 rose, causing the dollar-yen pair to drop nearly 0.5%, while the bitcoin-yen pair fell by 0.6%. Trends in the yen are closely monitored due to its role as a funding currency, and sustained yen strength is often associated with risk aversion. The unwinding of yen-funded positions, known as carry trades, can trigger global risk aversion, but recent data suggests that yen-funded carry trades remain active, with Japan increasing its holdings of U.S.
Treasury notes.