I've noticed an interesting thing this week. The governor of the Bank of Japan, Kazuo Ueda, basically said that interest rates will not increase at the April 28 meeting, and the market reacted immediately. Bitcoin broke above $74,000 on Monday, and it's no coincidence.

You see, the Bank of Japan has enormous power over the cryptocurrency market, even if few openly admit it. When it keeps rates low, the yen remains weak against the dollar, around 160. And here comes the carry trade: investors borrow yen at ridiculously low costs to invest in more profitable assets, including cryptocurrencies. It's practically free financing, fueling leveraged positions on futures.

To understand how critical this is, just remember August 2024. The bank surprised everyone with an unexpected rate hike, and what happened? Bitcoin plummeted from $64,000 to $49,000 in 48 hours. The carry trade unraveled in minutes, risky assets were liquidated en masse. This time Ueda did the opposite: he cooled expectations, signaling caution for at least another month.

The Japanese 20-year government bond auction on Tuesday confirms this. Institutional demand was the strongest since 2019, with a bid-to-cover ratio of 4.82. Major capital agrees: the rate hike cycle is on pause. Yields immediately dropped nine basis points. Clear message: the Japanese central bank will not make surprises in the coming months.

As I write, open interest on Bitcoin futures has increased by $2.1 billion in the 24 hours following the news, with net long positions confirmed in cryptocurrencies. Part of this positioning is financed directly or indirectly by the yen liquidity that Ueda has just preserved. It’s carry trade in action.

There’s also another geopolitical element to consider. Japan depends on the Middle East for over 90% of its oil imports, passing through the Strait of Hormuz. If talks between the U.S. and Iran lead to an agreement and oil prices fall further, inflationary pressure in Japan would ease even more. The central bank would have even less reason to raise rates, extending the window in which carry trade financed in yen can support risky assets, including cryptocurrencies.

In practice, Ueda has removed a systemic risk from the table. The $73,000 ceiling held for six weeks because macroeconomic headwinds gave traders with leverage no reason to push higher. Now that headwind has turned into a tailwind. For at least a month, the carry trade remains intact, and yen liquidity continues to flow into risky assets. It’s a scenario that favors a rally, at least until the next Japanese central bank meeting.