"Japan likely to raise policy rate in April"…Unwinding risk for the 'yen carry trade' emerges

Speculation is growing that the Bank of Japan (BOJ) could raise its policy rate to 1% in April. If Japan, which has maintained an ultra-low interest rate stance for an extended period, moves to hike rates, it is expected to generate significant ripple effects across global financial markets.

According to Coinpedia on the 14th (Korea time), Bank of America said in a report on the 10th that it expects the BOJ to raise the policy rate by 0.25% point in April. The timing of the BOJ’s rate hike had previously been expected in June, but there is now a view that the pace of tightening could be brought forward.

The BOJ already raised its policy rate to 0.75% in January. If an additional hike is implemented, Japan’s policy rate would reach 1%, the highest level since the 1990s.

Markets are focusing on the possibility that Japan’s tightening stance could lead to a reduction in global liquidity. With Japan maintaining an ultra-low rate policy for a long period, the 'yen carry trade' became widespread among global financial institutions. The yen carry trade refers to using the relatively low-yielding Japanese yen to invest in global assets.

If Japan’s policy rate rises and the yen strengthens, the burden of such leveraged trades could increase, potentially expanding selling pressure across risk assets such as equities and cryptoassets (cryptocurrencies).

In fact, when the BOJ raised its policy rate in July 2024, Bitcoin (BTC) plunged from around $65,000 to $50,000.