Bitcoin jumps above $87,000, yen slides as Bank of Japan hikes interest rates

Core Viewpoint - The Bank of Japan's interest rate hike has led to a depreciation of the Japanese yen and a corresponding increase in Bitcoin's value, reflecting market expectations and the ongoing shift in Japan's monetary policy [1][3]. Group 1: Bank of Japan's Policy Changes - The Bank of Japan raised its short-term policy rate by 25 basis points to 0.75%, marking the highest level in approximately three decades [1]. - The BOJ acknowledged that inflation has remained above its 2% target due to rising import costs and stronger domestic price dynamics, yet emphasized that real interest rates remain negative, indicating continued accommodative monetary conditions [2]. Group 2: Market Reactions - Following the rate decision, the Japanese yen fell to 156.03 per U.S. dollar from 155.67, while Bitcoin rose from $86,000 to $87,500 before stabilizing around $87,000 [3]. - The market's reaction was in line with expectations, as the rate hike had been anticipated, and speculators had maintained long positions in the yen, which mitigated any sharp buying response [3]. Group 3: Carry Trade Dynamics - Japan's historically low interest rates have made the yen a favored funding currency for carry trades, allowing investors to borrow cheaply in yen to invest in higher-yielding assets globally [5]. - Concerns that the rate hike could strengthen the yen and lead to an unwinding of carry trades were deemed exaggerated, as Japanese rates would still be significantly lower than U.S. rates, preventing a mass unwinding of these trades [6].