Japan raises interest rates by 1 basis point! The yen weakens instead of strengthening, Bitcoin breaks through $87,000.

The Bank of Japan (BOJ) today (19th) raised interest rates by 1 basis point as expected, but the financial market staged a “counterintuitive” scene: the yen did not strengthen but depreciated, with the USD/JPY exchange rate falling to the 156 level; Bitcoin temporarily surged past $87,000.

To curb the ongoing risk of rising prices, the BOJ decided to raise the policy interest rate by 25 basis points (1 basis point) to 0.75%, the highest level in 30 years, marking Japan’s official departure from decades of ultra-loose monetary policy.

In the decision statement, the BOJ admitted that, influenced by rising import prices and domestic inflation, the inflation rate has remained above the 2% target for a long time. However, policymakers also emphasized that the “real interest rate” after excluding inflation is still negative. This means that even with the nominal interest rate hike, the monetary policy environment remains accommodative.

After the announcement, the market experienced a typical “sell the fact” reaction. The USD/JPY exchange rate did not strengthen due to the rate hike but fell from 155.67 to 156.03.

Meanwhile, Bitcoin responded with a surge, rising from a low of $86,000 to $87,500, with gains narrowing before settling around $87,000.

The market’s calm reaction is mainly due to two reasons: on one hand, the rate hike by the BOJ has already been fully priced in; on the other hand, in recent weeks, speculative funds had accumulated large “JPY long” positions, which suppressed the momentum for chasing prices after the bullish news.

A False Alarm

Earlier, the market was worried that Japan’s rate hike might strengthen the yen, triggering a large-scale unwinding of “yen carry trades,” leading to a sharp decline in global stocks and Crypto.

The so-called “yen carry trade” refers to investors borrowing yen at extremely low or even negative interest rates to invest in higher-yield assets, including US Tech Stocks, US Treasuries, and even emerging markets and Crypto assets. Over the years, this mechanism has provided cheap leverage for the global market, amplifying liquidity and risk appetite.

However, with the release of Japan’s interest rate decision, this panic proved to be unnecessary. Analysts had previously pointed out that even if the BOJ raises rates to 0.75%, Japan’s interest rate level remains far below that of the US, and the structure of funding costs has not fundamentally changed, so there will naturally be no large-scale withdrawal of arbitrage funds.

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