BOJ's 1% Rate Hike Hits Yen Carry Trade, Crypto Sinks

Japan’s central bank raised its benchmark rate to 1% on Tuesday, a level not seen since the mid-1990s. The 25-basis-point move passed 7-1. Governor Kazuo Ueda was absent; he remains hospitalized with an infected hepatic cyst. Deputy Governor Shinichi Uchida was set to brief the media after the decision.

Bitcoin fell shortly after the announcement. The slide revived fears of yen carry trade unwinds, where traders borrow cheap yen to buy higher-yielding assets, including cryptocurrencies. Bitcoin has dropped 20% to 30% after each of the last four BOJ rate hikes, traders said.

Hirofumi Suzuki, chief currency strategist at SMBC, told reporters the absence of a 50-basis-point option signaled a measured path. He expects the BOJ to raise rates roughly every six to 12 months from here. “No motion for a more aggressive increase materialized,” Suzuki said.

The central bank also said it would suspend its bond reduction plan starting April next year. It will maintain purchases of about 2 trillion yen, roughly $12.5 billion, in sovereign debt each month. That could keep the yen from strengthening too quickly, tempering the force of carry trade unwinds.