The Bank of Japan (BOJ) has lifted its benchmark interest rate to 1%, the highest level since 1995. The 25-basis-point increase from 0.75% was widely anticipated, with pre-meeting pricing indicating a probability above 99%. This move represents the fifth rate hike since March 2024, when the central bank ended its prolonged era of negative interest rates and delivered its first increase in 17 years.
Alongside the rate decision, the BOJ confirmed it would continue to reduce its bond purchases at a pace of 200 billion yen per quarter, steadily unwinding its massive stimulus programme. The tightening cycle signals a determined effort to curb rising domestic inflation, but it also raises borrowing costs and puts pressure on Japan’s global carry trade. For years, ultra-low yen rates made the currency a favourite funding vehicle for investments in higher-yielding assets worldwide, including cryptocurrencies.
As Japanese rates climb, the appeal of these leveraged trades diminishes, potentially reducing liquidity in risk assets. The BOJ’s normalisation path is being closely watched by global markets, as soaring Japanese government bond yields intensify volatility spillovers to crypto and equity markets.
