BOJ Rate Hike Backfires: Yen Crashes, Bitcoin Price Rally Uncertain

The Bank of Japan’s latest decision to increase its interest rate to the highest in 30 years has sent the yen plummeting to record lows. As the yen continues to crash, defying the country’s expectations, officials warn of “appropriate action” against excessive moves. While this unexpected downfall following the BOJ’s rate hike has sparked a sudden surge in Bitcoin price, its future hangs in the balance.

Bitcoin Price Under Shaky Ground Post BOJ Rate Hike

According to the latest reports, the Japanese yen has declined to severe lows following the BOJ’s recent interest hike. Earlier today, officials like Atsushi Mimura, the vice finance minister of Japan’s international affairs, signaled the government’s intervention to tackle the currency’s further fluctuations. Mimura added that the recent foreign exchange movements were “one-sided and sharp.”

Notably, this statement comes in response to the yen’s historic plummets against other currencies like the dollar, the euro, and the Swiss franc. While the dollar hit a mark of 157.67 yen, the euro and the Swiss franc reached 184.90 yen and 198.08 yen, respectively. If the dollar continues to grow against the Japanese currency, reaching 160 yen, authorities are expected to take necessary actions.

In response to this development, the Bitcoin price has seen a marginal surge, sparking a fresh wave of enthusiasm. As of now, BTC is valued at $88,949, with a 1.04% increase in a day. Despite a 0.78% weekly dip, the pioneer crypto has seen a notable surge of 5.9% over the last month. However, market experts see this as a temporary hike ahead of a succeeding plunge.

As the Japanese authority has hinted at its potential intervention, a sustained Bitcoin price rally is uncertain. If the authority intervenes to support the yen’s growth, it could negatively impact the Bitcoin price, pulling its price downwards.

BOJ’s Rate Hike Fails to Support Yen: Here’s Why

Significantly, the yen’s plummet despite the BOJ’s rate hike could be connected to multiple factors. Firstly, the BOJ’s rate hike was largely anticipated, and the overnight index swap predicted almost 100% odds for it. This reportedly triggered a “buy the rumor, sell the news” reaction, with investors who had already bought the currency selling it to lock profits, adding downward pressure.

Another major reason is Japan’s negative interest rates in comparison to the US. While Japan’s real rates stand at around -2.15%, the US’s rates are at +1.44%. This difference has pushed investors to borrow yen at lower rates and invest in higher-yielding assets elsewhere.

At the same time, Robin Brooks, a Brookings Institution senior fellow, shared insights on a fundamental problem. He stated,

“Japan’s longer-term interest rates are much too low given massive public debt. As long as that remains true, the yen will continue its debasement cycle…Without this buying, Japan’s longer-term yields would be much higher, which would push the country into a debt crisis…Unfortunately, given how huge Japan’s debt overhang is, the choice is between a debt crisis and currency debasement.”

The BOJ Governor Kazuo Ueda’s press release has been quite disappointing for the markets. His words provided no clear guidelines on future rate decisions.  This emphasized the prevailing uncertainty, thus impacting the yen.