Crypto markets weakened on Friday as rising inflation in Japan, ongoing disruption risks from the Iran conflict, and expectations of a more hawkish Bank of Japan combined to pressure investor sentiment.

Bitcoin BTC $77,565.55 hovered around $77,800, struggling to regain upside momentum after repeatedly failing to break above Thursday’s high near $78,700 during Asian trading hours, according to CoinDesk data. The broader rally that began in late March from roughly $65,000 has recently lost traction, with price action shifting into consolidation.

Ether (ETH) also traded softer, slipping to about $2,300 and declining roughly 0.8% since midnight UTC. The move slightly underperformed bitcoin’s 0.6% drop, pointing to a broadly risk-averse tone across major crypto assets.

The cautious backdrop was reinforced by fresh Japanese inflation data. The Corporate Service Price Index (CSPI) rose 3.1% year-on-year in March, slightly above expectations, suggesting continued strength in service-sector pricing pressures.

At the same time, Japan’s core inflation increased to 1.8% from 1.6%, marking its first rise in five months. Headline inflation also edged higher to 1.5% from 1.3%, though it remained below the Bank of Japan’s 2% target for a second consecutive month. In contrast, core-core inflation—which strips out food and energy—slipped to 2.4%, its lowest level since October 2024.

Energy remains a key inflation driver, with geopolitical tensions pushing oil prices higher. Disruptions to shipments through the Strait of Hormuz amid the Iran conflict have added to supply concerns. Japan, as a major energy importer, is particularly exposed to these shocks. WTI crude has climbed more than 40% to around $96 since the conflict escalated in late February.

Markets are now focused on the Bank of Japan’s upcoming policy meeting. While rates are widely expected to be held steady, investors are watching for signals of a more restrictive stance, with some analysts pointing to June as a possible window for policy tightening if inflation pressures persist.

A more hawkish BOJ could strengthen the Japanese yen (JPY), which is currently positioned relatively bearishly in futures markets. That leaves room for a sharp rebound if the central bank surprises on the upside in its policy guidance.

However, yen strength could also ripple across global markets. As a widely used funding currency in carry trades, a rapid appreciation may force position unwinding, potentially increasing volatility across equities and crypto assets.

Geopolitical risks remain elevated. Reports suggest Iran has deployed additional naval mines in the Strait of Hormuz, a critical passage handling roughly 20% of global seaborne oil shipments. Shipping flows through the strait have already declined sharply since tensions escalated, according to Axios.

The Pentagon has reportedly warned that clearing mines from the Strait could take up to six months, with operations only feasible after the conflict ends. Officials also cautioned that prolonged energy price pressures could keep U.S. inflation elevated, complicating expectations for Federal Reserve rate cuts later this year.