At the monetary policy meeting of the Bank of Japan (BoJ) on Tuesday, it was decided to keep the benchmark interest rate constant at 0.75 percent. However, the difference of opinion within the board became evident; Three out of nine members argued that an interest rate increase would be appropriate on the same day. This split was recorded as the biggest vote gap during Kazuo Ueda’s presidency.
Inflation forecast increased, growth expectation decreased
The bank announced that it expects core inflation in Japan to reach 2.8 percent this fiscal year. While the growth expectation was 1 percent in the previous projection, this rate was reduced to 0.5 percent with the new forecast. This change was influenced by the disruptions in the energy flow caused by the war in the Strait of Hormuz and the pressure created by the increase in global energy prices on the import-based Japanese economy.
In line with these developments, markets began to evaluate the possibility of an interest rate increase at the monetary policy meeting on June 16 as 74 percent. This rate was in line with the expectation highlighted in Bloomberg News’ analysis.
While the yen gains value, pressure continues on bitcoin
With the possibility of an interest rate increase increasing, the Japanese yen gained value against the dollar; USD/JPY parity decreased by approximately 0.5 percent to 158.95. While high interest rate expectations generally support the currency of the relevant country, in this case the yen came to the fore. On the other hand, bitcoin-Japanese yen (BTC/JPY) parity decreased by 0.6 percent to 12.28 million yen on the bitFlyer exchange. According to TradingView data, bitcoin also lost value in dollar terms.
Evaluating the interest rate increase messages, market players expressed their concerns about the fate of long-standing “carry trade” strategies with the Japanese yen. Because during a similar trend in August last year, bitcoin dropped sharply from $ 65,000 to $ 50,000 in a week.
Carry trade and the latest trends in the market
The Japanese yen is frequently used for borrowing purposes in global financial markets due to its traditionally low interest rates. This practice allows investors to borrow in yen at low interest and seek higher returns abroad. However, when the yen begins to strengthen, these positions can be closed quickly, creating selling pressure in risky assets.
Latest data indicate that carry trade positions are still continuing. Market flows for February showed Japanese institutions continuing their purchases of US Treasuries. During this period, Japan’s total stock of US bonds rose to $1.24 trillion, the highest level since February 2022.
The founders of the newsletter service LondonCryptoClub drew attention to this situation with the following words:
“Japan remains the largest foreign holder of US Treasury bonds and has purchased in 13 of the last 14 months. This shows that Japanese investors are still evaluating high return opportunities. Rumors about the alleged carry trade closure in the markets do not reflect reality, and it would be misleading to comment without understanding how Japanese investors are acting.”
In summary, signs of a possible deviation from the Bank of Japan’s low rate policy are being closely watched in both foreign exchange and cryptocurrency markets. However, according to current data, Japanese investors maintain their risk appetite and maintain their positions in international assets.
