The Bank of Japan's decision to maintain its benchmark interest rate at 0.75% was met with a split vote, as three policymakers pushed for an immediate rate hike. This development has heightened expectations of a borrowing cost increase by the end of the second quarter, with the yen responding positively and bitcoin facing continued pressure.
The central bank also revised its core inflation forecast upward to 2.8% for the current fiscal year, while lowering its economic growth projections to 0.5%. The likelihood of a June rate hike has been priced in by markets, with a 74% chance of an increase on June 16. The Japanese yen has jumped, causing the dollar-yen pair to decline, while the bitcoin-yen pair has fallen. Trends in the yen are closely watched due to its role as a funding currency, and sustained strength is often associated with risk aversion.
However, recent data suggests that yen-funded carry trades remain active, with Japan increasing its holdings of U.S. Treasury notes, indicating that concerns about a yen carry trade unwind may be overstated.