The Bank of Japan's decision on Tuesday has heightened expectations of a potential interest rate hike by the end of the second quarter. This development has had a positive impact on the yen, while bitcoin continues to experience downward pressure. The central bank maintained its benchmark interest rate at 0.75%, as anticipated, but the decision was not unanimous, with three board members advocating for an immediate rate hike. The 6-3 vote split is the largest since Kazuo Ueda took office as governor, indicating a growing sentiment among policymakers to increase borrowing costs.
The central bank also revised its forecast for core inflation to 2.8% for the current fiscal year and reduced its economic growth projections to 0.5% from 1%. This shift in stance is largely attributed to global energy price increases and 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 observers. The Japanese yen has appreciated, causing the dollar-yen pair to decline by nearly 0.5% to 158.95.
The bitcoin-yen pair has also experienced a decline of 0.6% to 12.28 million yen. 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, recent data on market flows suggests that yen-funded carry trades remain active, with Japan increasing its holdings of U.S. Treasury notes.