The Bank of Japan is expected to raise its policy rate to 1% from 0.75% when it concludes its meeting on June 16, the highest level since 1995, and signal it is willing to press ahead.
This once again focuses attention on the yen carry trade, which has tended to weigh on cryptocurrency markets. For decades, a cheap yen has financed leveraged bets on risky assets, including cryptocurrencies.
Higher Japanese rates and a firmer yen make such borrowing more expensive and could force an easing that depletes global liquidity. The last time the BOJ surprised with a hike, on August 5, 2024, the resulting reduction sent bitcoin tumbling from around $64,000 to $49,000 in two days.
The move would align Japan with the ECB, which raised rates on Thursday, and with a Federal Reserve that has kept energy-driven inflation on hold this week. Policy is tightening on all fronts, the opposite of the easy liquidity that fuels cryptocurrencies.
As such, the increase is widely expected and for the most part already priced in, and even at 1% Japan’s real rates are still deeply negative, so the carry trade is not dead. Japanese investors have continued to buy foreign assets and so far there are few signs of recovery.
A cautionary sign, however, is a hawkish signal landing on stretched positioning, with speculative bets against the yen again near its July 2024 levels.
Cryptocurrencies shrug for now. Bitcoin is trading higher on SpaceX’s IPO day near $63,000, according to data from CoinDesk.
