[After the Bank of Japan raised interest rates, the "anti-risk" yen strengthened, and Bitcoin maintained its weekly decline]
Bitcoin (BTC) suffered as the yen reached its strongest level against the dollar since March after the Bank of Japan raised interest rates.
The Bank of Japan (BoJ) raised interest rates and announced other liquidity tightening measures, leaving Bitcoin on the defensive in the foreign exchange market while the Japanese yen (JPY) strengthened. The central bank raised its unsecured overnight call rate target to about 0.25% from 0% - 0.1% and plans to cut bond purchases to about 3 trillion yen ($200 billion) per month by the first quarter of 2026. As of March, monthly purchases were about 6 trillion yen.
Bitcoin held steady at around $66,000 on expectations the Federal Reserve would cut interest rates again, but fell 2% on the week. That fueled demand for the "safe-haven" yen, sending USD/JPY down to near 150, the yen's strongest level since March. Futures tied to the S&P 500 rose 0.4%, pointing to a likely positive start Wednesday, according to TradingView.
The low-yielding yen is often used to invest in high-yielding assets. A significant rise in the yen would therefore tighten carry trades and force investors to reduce their exposure to riskier assets, including cryptocurrencies. "The yen's popularity as a funding currency could trigger a ripple effect in other markets, helping to tighten global financial conditions," BlackRock said in its weekly report.
The yen has gained nearly 6.4% against the dollar this month, its biggest gain since November 2022. This partly explains the recent weakness in tech stocks and Bitcoin near $70,000.
If the Federal Reserve sends a strong dovish signal later on Wednesday and sets a stage for rapid interest rate cuts, the yen may strengthen further, exacerbating risk aversion.
