Bitcoin price rises despite Japan interest rate hike – what’s going on?

After years of holding on to extremely low interest rates, Japan is carefully turning the monetary knobs. The Bank of Japan today took another step towards phasing out its extremely loose policy. Remarkably, it was not the yen, but mainly Bitcoin (BTC) that reacted quickly.

Japanese interest rates hit their highest level in 30 years

The Bank of Japan raised short-term interest rates by 25 basis points to 0.75 percent. This puts an end to the extremely liberal policy that has been in place for decades. Still, the yen weakened just after the decision, from 155.67 to about 156 per dollar. Traders had already largely priced in the move.

Bitcoin (BTC) responded immediately: the price rose from $85,200 to $88,100.

Why the Bitcoin price is rising

In the explanatory memorandum, the Bank of Japan acknowledged that inflation has been above the 2 percent target for some time. This is partly due to higher import prices and stronger domestic price developments. At the same time, the central bank indicated that interest rates, adjusted for inflation, are still negative. The policy therefore remains stimulating.

This is important for Bitcoin investors. As long as there is loose monetary policy worldwide, scarce assets such as Bitcoin remain attractive.

No massive outflow from risky investments

Some analysts feared that higher rates in Japan would put an end to the so-called yen carry trade. This involves borrowing cheaply in yen to invest in markets with higher returns. If that trade is phased out, it could cause market pressure worldwide – including for crypto.

But that turned out not to be so bad. The interest rate differential between Japan and the US remains significant, keeping the yen cheap as a financing currency. There was no massive outflow from risky investments, including Bitcoin.