The Bank of Japan's recent monetary policy decision has heightened expectations of an imminent interest rate increase, with the yen experiencing a boost and bitcoin facing downward pressure. Despite keeping its benchmark interest rate unchanged at 0.75%, the decision was not unanimous, with three board members pushing for an immediate rate hike. This 6-3 vote split is the largest since Kazuo Ueda took office as governor, indicating a growing inclination among policymakers to raise borrowing costs.
The central bank also revised its forecast for core inflation to 2.8% for the current fiscal year and lowered its economic growth projections to 0.5%. As a result, traders are now 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%, while the bitcoin-yen pair has fallen by 0.6%.
Trends in the yen are closely monitored due to its historical role as a funding currency, with sustained yen strength often associated with risk aversion. This has led to concerns about the potential unwinding of carry trades, which could trigger global risk aversion. However, recent data suggests that yen-funded carry trades remain active, with Japan continuing to increase its holdings of U.S.
Treasury notes.