Bitcoin moved higher while the Japanese yen weakened after the Bank of Japan raised its policy rate to the highest level in 31 years.
The Bank of Japan (BOJ) lifted its benchmark interest rate by 25 basis points on Friday to 1.25%, its highest level in 31 years. The decision came as the central bank continues to deal with persistent inflation and prolonged weakness in the Japanese currency.
The BOJ said inflation could exceed its 2% target, pointing to rising import expenses and energy costs as sources of additional price pressure.
The latest increase is the BOJ’s second rate hike in three months. It follows public calls from U.S. Treasury Secretary Scott Bessent for Tokyo to move more quickly on tightening monetary policy to help bolster the yen. Bessent has said that a stable currency market supports Treasury market stability and argued that coordinated purchases of yen serve U.S. interests.
Bitcoin’s BTC/JPY pair on Tokyo-based bitFlyer gained 0.5% to JPY 12.06 million after the BOJ announcement. In dollar terms, BTC climbed to $77,400, extending its recovery from an overnight low of $76,200, according to CoinDesk data.
The yen fell against the U.S. dollar, with USD/JPY rising to 156.70 from 156.20.
Yen Carry Trade Draws Attention
Movements in the yen and BOJ policy have long been closely watched by global investors. Japan’s extended period of near-zero interest rates encouraged traders to borrow yen at relatively low costs and deploy the funds into higher-yielding assets in other markets.
That strategy, known as the yen carry trade, has raised concerns that a sharp reversal could put pressure on financial markets worldwide. The market sell-off involving equities and bitcoin in early August 2024 was cited by some market participants as an example of the potential impact.
However, Japanese rates remain considerably below U.S. borrowing costs even after Friday’s hike. The sizable gap between the two countries’ yields continues to provide an incentive for investors using yen-funded carry trades.
Earlier this week, the Federal Reserve increased its benchmark rate by 25 basis points to 3.75%-4.00%, its first rate hike since 2023. Goldman Sachs and Morgan Stanley are among the investment banks that now anticipate another Federal Reserve increase in October.
03:32 UTC: Added information on the BOJ’s inflation outlook and yen carry trades.
