The Bank of Japan’s decision to hold its policy interest rate unchanged is becoming a hot topic. It remains at 0.75% with no change, but what’s notable is that there were three board members who called for a rate hike. It’s said to be the largest voting split since the Ueda era began. After seeing this, the market has priced in the probability of a rate hike in June up to 74%.

That’s why the yen is rising so quickly. The USD/JPY pair has fallen to 158.95, meaning a significant move toward yen strength. Meanwhile, Bitcoin is facing downward pressure in the opposite direction, with BTC/JPY dropping to 12.28 million yen. I’m also concerned to see weakness emerging even in assets denominated in U.S. dollars.

Why is Bitcoin falling? Many people believe it has to do with the unwinding of carry trades behind the yen’s appreciation. The Japanese yen has long been used as a funding currency, so when the yen strengthens, it becomes a global risk-aversion signal. In fact, it has been pointed out that in August 2024, Bitcoin’s crash from 65,000 dollars to 50,000 dollars within a week was triggered by the unwinding of yen carry.

However, recent data suggests the picture is more complicated. Japanese institutional investors have been increasing their purchases of U.S. Treasuries, and their holdings have grown to 1.24 trillion dollars. That’s an increase of 14 billion dollars—not 14 billion dollars? In other words, the carry trades using yen funds are still actively ongoing. So the situation isn’t simply “yen strengthening = carry unwinding = risk aversion.”

It’s likely that the Bank of Japan’s upward revision of its inflation outlook to 2.8% is due to rising pressure from energy prices. The economic growth rate has been revised downward from 1% to 0.5%, and there appears to be a backdrop for policymakers to push for further rate hikes. We need to watch just how real the rate-hike expectations for June are, and how they will affect the yen and Bitcoin denominated in Japanese yen.