Japan’s central bank cools rate hike expectations, removing a key risk for bitcoin’s rally
The BOJ’s dovish shift keeps the yen carry trade alive, the same trade whose unwind crashed bitcoin 24% in two days in August 2024.
What to know:
- Bitcoin’s surge past $74,000 was helped by the Bank of Japan’s signal that it is unlikely to raise interest rates at its April 28 meeting, easing macro pressures on risk assets.
- A dovish Bank of Japan keeps the yen weak and carry-trade funding cheap, supporting leveraged positions in bitcoin and other cryptocurrencies as open interest in futures climbs.
- If U.S.-Iran talks lead to lower oil prices and reduced inflation pressure in Japan, the central bank will have even less incentive to hike, extending the period in which the yen-funded carry trade can bolster bitcoin.
Such decisions have shown to spillover to the crypto market in previous years. On August 5, 2024, a surprise BOJ rate hike triggered a yen carry trade unwind that crashed bitcoin from $64,000 to $49,000 in 48 hours.
The carry trade, where investors borrow cheaply in yen and deploy into higher-yielding assets including crypto, had become one of the largest sources of leveraged risk-asset exposure globally. A yen unwind tends to cause quick sell-offs in risk assets, with bitcoin and major cryptocurrencies the first to be hit.
But Ueda just signaled that trade stays intact for at least another month. Japan’s 20-year bond auction on Tuesday drew its strongest demand since 2019, with a bid-to-cover ratio of 4.82 against a 12-month average of 3.27, confirming that institutional capital agrees the hiking cycle is pausing.
Twenty-year yields, near their highest since 1997, fell nine basis points after the auction.
