The Bank of Japan's decision on its monetary policy has heightened expectations of an interest rate increase by the end of the second quarter, with the yen benefiting and bitcoin facing downward pressure. The central bank maintained its key interest rate at 0.75%, but the decision was not unanimous, with three members voting for an immediate rate hike.
This 6-3 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 its economic growth projections to 0.5% from 1%.
Markets have priced in a 74% chance of a rate hike on June 16, following the bank's hawkish stance, largely due to energy price increases and inflationary pressures. The Japanese yen rose, causing the dollar-yen pair to fall nearly 0.5%, while the bitcoin-yen pair fell by 0.6%.
The yen's strength could lead to risk aversion, as its prolonged period of ultra-low interest rates has encouraged traders to borrow in yen and invest in higher-yielding assets abroad. However, recent data suggests that yen-funded carry trades remain active, with Japan increasing its holdings of U.S.
Treasury notes, indicating that the unwinding of these trades may not be imminent.