Bank of Japan Hikes Rates, Bitcoin Gains as Yen Slides

The Bank of Japan (BOJ) raised its short-term policy rate by 25 basis points to 0.75%, the highest level in nearly 30 years, marking a continued shift away from decades of ultra-loose monetary policy.

Bitcoin (BTC $88,471.90) strengthened as the Japanese yen fell following the decision. The yen dropped to 156.03 per U.S. dollar from 155.67, while Bitcoin climbed from $86,000 to $87,500 before settling near $87,000, according to CoinDesk data.

In its policy statement, the BOJ noted that inflation has remained above its 2% target for an extended period, driven by rising import costs and firmer domestic prices. However, officials emphasized that real interest rates remain negative, meaning monetary conditions are still accommodative even after the hike.

The market reaction largely followed expectations. Speculators had maintained long positions in the yen for weeks, limiting any sharp appreciation after the announcement. Concerns that higher rates could strengthen the yen and trigger a broad unwinding of carry trades proved overblown.

For decades, Japan’s ultra-low or negative rates made the yen a favored funding currency for carry trades, allowing investors to borrow cheaply in yen to invest in higher-yielding assets such as U.S. tech stocks, Treasuries, and emerging-market bonds. This strategy helped amplify global liquidity and risk-taking as long as Japanese rates remained near zero.

Even with the latest hike, Japanese interest rates remain significantly lower than those in the U.S., reducing the risk of a large-scale unwinding of carry trades and easing concerns for risk-asset bulls.