The Bank of Japan (BOJ) maintained its key short-term interest rate at 0.75% on Friday, marking the highest level since 1995. The decision followed an 8-1 vote by the central bank's board, with member Hajime Takata dissenting in favor of a hike to 1.0% due to inflation risks. This policy stance comes ahead of a snap election scheduled for February 8, adding a layer of political pressure to the monetary decision.
Concurrently, the Japanese yen experienced sharp volatility in forex markets. The dollar initially surged past the 159.00 yen mark after BOJ Governor Kazuo Ueda provided few clues on plans to support the weakening currency, instead focusing on collaboration with government officials to ensure bond market stability. However, the dollar's rise was short-lived, with selling pressure pushing the USD/JPY pair down to 157.33 before it settled near 158.00, ending the day 0.3% lower.
The sudden currency moves prompted intense speculation about potential government intervention. Finance Minister Satsuki Katayama stated she was closely monitoring currency trading but declined to comment on market rumors that officials had been conducting rate checks with banks—a common precursor to direct market intervention. Vice Finance Minister for International Affairs, Atsushi Mimura, similarly refused to comment when asked if Tokyo had bought yen to bolster its value. Analysts noted that the officials' unusual silence, contrasted with their typical verbal interventions to talk down the dollar-yen rate, suggests a heightened readiness to act.
The BOJ also revised its economic forecasts upward, projecting 0.9% GDP growth for the fiscal year ending March 2026 and 1.0% for the following year, while core inflation is expected to remain above its 2% target. Chief strategists interpreted this focus on inflation as a "hawkish" signal of the bank's intent to continue its gradual tightening cycle, potentially raising rates once every six months to a year.
Economists warn that Japan's policy shift, combined with its rising government debt and bond yields, could ripple into global financial markets and affect cryptocurrency prices through liquidity channels. A stronger yen or a sustained BOJ tightening cycle could reduce the flow of Japanese capital into risk assets, including crypto. Analysts suggest the USD/JPY reaching the 160 level could provide a strong impetus for a coordinated policy response from the government and central bank, potentially as soon as April.
