Bank of Japan Hikes Rates 25 Basis Points as Bitcoin Tops $77,000

The Japanese yen weakened while bitcoin gained after the Bank of Japan raised interest rates to their highest level in 31 years.

The Bank of Japan (BOJ) increased its benchmark interest rate by 25 basis points on Friday, taking it to 1.25%, the highest level in three decades. The central bank said the move was aimed at addressing persistent inflation pressures and the yen’s prolonged weakness.

The BOJ cited the risk that inflation could exceed its 2% target, with higher import and energy costs adding to price pressures.

Friday’s decision marked the BOJ’s second rate increase in three months. It also came several weeks after U.S. Treasury Secretary Scott Bessent urged Japan to accelerate monetary tightening to help support the yen. Bessent said an orderly currency market would contribute to stability in the Treasury market and defended coordinated intervention to buy yen as being in the U.S. interest.

Bitcoin’s Japanese yen-denominated pair (BTC/JPY) on Tokyo-based bitFlyer climbed another 0.5% to JPY 12.06 million following the BOJ decision. Bitcoin’s dollar price rose to $77,400, extending its recovery from an overnight low of $76,200, according to CoinDesk data.

The yen also weakened against the U.S. dollar, sending the USD/JPY exchange rate to 156.70 from 156.20.

Yen Carry Trade Remains in Focus

BOJ policy decisions and movements in the yen can influence global markets because Japan maintained near-zero interest rates for more than a decade. That environment encouraged traders to borrow cheaply in yen and invest the funds in higher-yielding assets elsewhere.

For years, market participants have warned that a reversal of the so-called yen carry trade could trigger broader declines across financial markets. The equity and bitcoin sell-off in early August 2024 was viewed by some observers as an example of that potential risk.

The latest rate increase, however, leaves Japanese borrowing costs well below U.S. rates. The resulting yield differential remains substantial, helping preserve the appeal of yen-funded carry trades.

Earlier this week, the Federal Reserve raised its benchmark rate by 25 basis points to a target range of 3.75%-4.00%, marking its first rate increase since 2023. Investment banks including Goldman Sachs and Morgan Stanley now anticipate another Fed rate hike in October.

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