Bitcoin jumps above $87,000, yen slides as Bank of Japan hikes interest rates

Bitcoin BTC$86,971.58 strengthened as the Japanese yen dropped after the Bank of Japan (BOJ) hiked interest rates as expected.

The Japanese central bank raised its short-term policy rate by 25 basis points to 0.75%, the highest level in roughly three decades, continuing the gradual shift away from decades of ultra-loose monetary policy.

In the policy statement, BOJ acknowledged that inflation has held above its 2% target for an extended period due to rising import costs and firmer domestic price dynamics. However, policymakers emphasized that interest rates adjusted for inflation remain negative, implying that monetary conditions are still accommodative even after the hike.

The Japanese yen slipped to 156.03 per U.S. dollar from 155.67 following the rate decision. Bitcoin, the leading cryptocurrency by market value, rose from $86,000 to $87,500 before pulling back slightly to trade near $87,000 at press time, CoinDesk data show.

The market reaction aligns with expectations, as the rate hike had been widely anticipated. Furthermore, speculators had held long positions in the Japanese yen for weeks, preventing any sharp yen-buying response after the announcement.

In recent weeks, some observers had expressed concerns that the rate hike could strengthen the yen, triggering an unwinding of yen carry trades and a broad-based risk-off sentiment.

For decades, Japan’s ultra-low or even negative interest rates made the yen a preferred funding currency for carry trades. Investors borrowed cheaply in yen to invest in higher-yielding assets, including the U.S. tech stocks, Treasury notes and emerging market bonds, amplifying global liquidity and risk appetite. This strategy thrived as long as Japan’s rates stayed pinned near zero, effectively turning the yen into a key enabler of leverage and risk-taking across global financial markets.

So, the prospects of higher rates in Japan scared risk-asset bulls. These fears, however, were overblown, as CoinDesk explained, noting that even after the rate hike, Japanese rates would remain notably cheaper than their U.S. counterparts, ensuring there is no mass unwinding of carry trades.