Bitcoin advanced while the Japanese yen slipped after the Bank of Japan raised its benchmark interest rate to its highest level in 31 years.

The BOJ increased rates by 25 basis points on Friday, taking the policy rate to 1.25%. It was the central bank’s second increase in three months, coming as policymakers contend with persistent inflation and a prolonged decline in the yen’s value.

The central bank said it acted amid concerns that inflation could move above its 2% target. Higher import expenses and energy prices were among the factors cited as potential sources of additional inflationary pressure.

The rate decision followed comments from U.S. Treasury Secretary Scott Bessent several weeks earlier, when he urged Tokyo to accelerate monetary tightening to support the yen. Bessent has said that an orderly currency market is important for Treasury market stability and maintained that coordinated yen-buying intervention serves U.S. interests.

Bitcoin’s BTC/JPY pair on Tokyo-based bitFlyer rose 0.5% to JPY 12.06 million after the BOJ announcement. In dollar terms, BTC climbed to $77,400, extending its rebound from an overnight low of $76,200, according to CoinDesk data.

The Japanese currency weakened against the U.S. dollar, with USD/JPY rising to 156.70 from 156.20.

Yen Carry Trade Remains a Market Focus

BOJ policy and yen movements have global implications because Japan maintained near-zero interest rates for more than a decade. Low borrowing costs encouraged investors to borrow yen and use the proceeds to purchase higher-yielding assets in other markets.

The resulting yen carry trade has long been viewed as a potential source of market volatility if investors unwind those positions rapidly. The equity and bitcoin sell-off in early August 2024 provided an example of how a carry-trade reversal can coincide with pressure across risk assets.

Japanese rates, however, remain significantly below U.S. rates even after the latest BOJ increase. The continued yield gap means borrowing yen to invest elsewhere remains economically attractive for some traders.

The Federal Reserve raised its benchmark rate by 25 basis points earlier this week, setting the target range at 3.75%-4.00%. The move marked the Fed’s first rate hike since 2023. Goldman Sachs and Morgan Stanley now expect the U.S. central bank to raise rates again in October.

03:32 UTC: Added details on the BOJ’s inflation outlook and yen carry trades.