The Bank of Japan's decision on its monetary policy has heightened expectations of a potential increase in borrowing costs by the end of the second quarter. As a result, the yen has strengthened, while bitcoin continues to face downward pressure. The central bank maintained its benchmark interest rate at 0.75%, but the vote was not unanimous, with three members advocating for an immediate rate increase. This 6-3 split is the largest since Kazuo Ueda took office as governor, indicating a growing inclination among policymakers to raise borrowing costs.
The central bank has also revised its forecast for core inflation to 2.8% for the current fiscal year and lowered its economic growth projections to 0.5%. The primary reason behind the Bank of Japan's shift towards a more hawkish stance is the disruption in global energy prices due to war-related issues, which has led to increased inflationary pressures in energy-import-dependent economies like Japan.
Traders have begun pricing 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%.
The bitcoin-yen pair has also fallen by 0.6%. 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 it can trigger the unwinding of carry trades. However, the latest available data on market flows suggests that yen-funded carry trades remain active, with Japan continuing to increase its holdings of U.S.
Treasury notes.