Bitcoin extended its recovery while the Japanese yen weakened after the Bank of Japan raised interest rates to their highest level in 31 years.
The Bank of Japan (BOJ) increased its benchmark rate by 25 basis points on Friday, bringing it to 1.25%. The move marks the second rate hike in three months as the central bank responds to persistent inflation and continued weakness in the yen.
The BOJ said it was concerned that inflation could rise above its 2% target, citing higher import costs and energy prices as factors that could keep upward pressure on consumer prices.
The decision came several weeks after U.S. Treasury Secretary Scott Bessent urged Tokyo to accelerate monetary tightening in an effort to strengthen the yen. Bessent has argued that an orderly currency market would help support stability in the U.S. Treasury market and said coordinated yen purchases were aligned with U.S. interests.
Following the decision, the BTC/JPY trading pair on Tokyo-based bitFlyer rose 0.5% to JPY 12.06 million. Bitcoin’s dollar-denominated price climbed to $77,400, recovering further from its overnight low of $76,200, according to CoinDesk data.
The yen weakened against the dollar, with USD/JPY moving up to 156.70 from 156.20.
Rate Gap Keeps Yen Carry Trade Alive
BOJ decisions and yen movements remain important for global markets because Japan spent more than a decade maintaining near-zero interest rates. The low borrowing costs encouraged investors to borrow yen and direct the proceeds toward assets offering higher returns in other markets.
This strategy, commonly known as the yen carry trade, has also raised concerns about the potential consequences of a large-scale unwind. The sharp sell-off in equities and bitcoin in early August 2024 was seen by some market participants as an indication of how quickly such moves can affect risk assets.
Despite Friday’s increase, Japanese rates remain well below U.S. rates. The substantial difference between the two countries’ borrowing costs continues to support the economics of yen-funded carry trades.
The Federal Reserve also raised rates by 25 basis points earlier this week, taking its benchmark target range to 3.75%-4.00%. It was the Fed’s first rate increase since 2023. Goldman Sachs and Morgan Stanley are among the investment banks expecting another hike in October.
03:32 UTC: Added details about the BOJ’s inflation outlook and yen carry trades.
