Key facts
- Yen shorts have reached a nine-year high.
- The Bank of Japan raised its benchmark interest rate to 1%, the highest since 1995.
- This is the BOJ's fifth rate hike since ending negative rates.
- Bitcoin fell over 1% following the rate hike, extending its 24-hour drop to over 2%.
- The BOJ plans to reduce government bond purchases from April 2027.
- The central bank will continue buying roughly 2 trillion yen in JGBs monthly.
Short positions on the Japanese yen have surged to a nine-year high as traders positioned themselves ahead of the Bank of Japan's rate decision. The BOJ lifted its benchmark interest rate by 25 basis points to 1%, the highest level since 1995, marking a significant shift away from decades of ultra-easy monetary policy amid concerns over inflation driven by a weak yen and elevated energy costs.
This decision, made by a 7-1 vote, was anticipated by markets. The BOJ noted that price pass-through from rising crude oil prices is progressing and could spread to consumer prices. Despite the rate hike, the yen weakened against the US dollar, trading near 160.29. The central bank also announced plans to reduce its government bond purchases from April 2027 onward, though it will continue buying approximately 2 trillion yen ($12.5 billion) monthly.
Bitcoin experienced selling pressure, falling over 1% after the announcement and extending its 24-hour drop to more than 2%, trading around $65,827. Historically, past BOJ hikes since 2024 have preceded 20-30% Bitcoin selloffs, often linked to the unwinding of yen carry trades which drains global liquidity. However, the yen's weakening and a potential US-Iran peace deal have so far limited further declines in Bitcoin.