Japan Just Hit a 31-Year Rate High — Here’s Why Crypto Traders Are Watching Closely

TLDR

• The Bank of Japan raised its key rate from 0.75% to 1%, the highest since 1995
• The hike was driven by inflation pressures linked to the Iran war and rising oil costs
• The decision passed 7-1; BOJ Governor Kazuo Ueda was absent due to hospitalization
• Bitcoin fell under selling pressure following the announcement
• The Nikkei 225 jumped up to 1%, briefly topping 70,000 points

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The Bank of Japan raised its short-term interest rate to 1% on Tuesday, the highest level since 1995. The move marks another step in Japan’s slow exit from decades of ultra-low borrowing costs.

The rate was lifted by 25 basis points from 0.75%. It was a widely expected decision, passing by a 7-1 vote among board members.

BOJ Governor Kazuo Ueda did not attend the meeting. He is currently hospitalized for treatment of an infected liver cyst. Deputy Governor Shinichi Uchida was expected to speak at the post-meeting press conference.

The one dissenting vote came from Toichiro Asada, a board member appointed in April. He argued that risks to economic growth from the Middle East conflict outweighed inflation concerns.

Why the BOJ Raised Rates

Japan imports nearly all of its oil and gas. The ongoing US-Iran war has pushed energy prices sharply higher, putting pressure on consumer prices across the country.

The BOJ said companies are passing on rising oil costs to each other at a “relatively fast pace.” It warned this could push up prices across a wide range of goods.

The central bank also noted that medium- and long-term inflation expectations have been rising. It said there is a risk of inflation moving above its target if left unchecked.

The yen has also been under pressure, trading at around 160 yen to the US dollar. Low rates had contributed to that weakness, making imports even more expensive.

The BOJ said government steps to reduce household fuel costs and progress in securing alternative energy supplies have lowered the risk of a sharp economic downturn from the conflict.

Impact on Markets

Japan’s Nikkei index rose as much as 1% after the announcement, briefly crossing 70,000 for the first time. The index had touched that level earlier in the session before paring some gains.

One analyst called the outcome positive for risk assets. Hirofumi Suzuki, chief FX strategist at SMBC, noted that no proposal for a larger 50 basis point hike was made. He said the BOJ is likely to keep raising rates gradually, roughly once every six to twelve months.

Bitcoin came under selling pressure following the BOJ decision. Historically, Bitcoin has dropped between 20% and 30% after each of the last four BOJ rate hikes. The concern centers on the unwinding of yen carry trades, where investors borrow cheaply in yen to buy higher-yielding assets like crypto.

The BOJ also said it will pause its bond-tapering program from April next year. It will continue buying around 2 trillion yen, roughly $12.5 billion, in Japanese government bonds each month.

The central bank said it will no longer conduct an annual review of its bond taper plan but remains ready to adjust purchase levels at future meetings if needed.

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