The Bank of Japan's recent monetary policy decision has heightened expectations of a potential hike in borrowing costs by the end of the second quarter. As a result, the yen has seen an uptick, while bitcoin continues to face downward pressure. The central bank maintained its benchmark interest rate at 0.75%, in line with expectations, but the decision was not unanimous, with three board members pushing for an immediate rate hike.
This 6–3 vote split marks the largest since Kazuo Ueda took office as governor, indicating a growing desire among policymakers to increase 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% from 1%.
The primary driver behind the Bank of Japan's hawkish stance is the war-related disruptions in energy flows through the Strait of Hormuz, which have driven up global energy prices and contributed to inflationary pressures in energy-import-dependent economies like Japan. Traders 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 has risen, causing the dollar-yen pair to decline by nearly 0.5% to 158.95.
The bitcoin-yen pair has also fallen by 0.6% to 12.28 million yen, consistent with the weakness in dollar-denominated prices. Trends in the Japanese yen are closely monitored due to its historical role as a funding currency. Prolonged yen strength is often associated with risk aversion, as the Bank of Japan's prolonged period of ultra-low interest rates has encouraged traders to borrow in yen and invest in higher-yielding assets abroad. As a result, yen strength is often seen as triggering the unwinding of these carry trades.
However, the latest available data on market flows from February suggests that yen-funded carry trades remain active, with Japan continuing to increase its holdings of U.S. Treasury notes.