The Bank of Japan raised its interest rate to 1%: a historic 30-year high and a blow to carry-trade.
The Bank of Japan (BOJ) has decided to raise its key interest rate to 1% — the highest level since 1995. The decision was made on June 16 by a majority vote (7 to 1). The increase was 25 basis points, up from the previous 0.75%. Thus, Japan has returned to the 1% mark for the first time in 31 years, taking another decisive step away from the era of ultra-cheap money.
Why the regulator opted for a hike
The main driver of this move was inflation. Price growth accelerated amid rising oil prices caused by geopolitical tensions around Iran. The BOJ warned that core inflation could settle above the 2% target level. Additionally, the weakness of the yen played a role. By June, the Japanese currency's exchange rate had fallen to around 160 per dollar, leading to higher import costs and increased everyday expenses for households. In May, authorities spent nearly 11.7 trillion yen (about $73.5 billion) on currency interventions (buying yen to support the exchange rate), but this had no long-term effect — the currency soon weakened again.
Only one board member, Toichiro Asada, voted against the hike. He believes the risks to production and employment are currently higher than the threat of price acceleration and proposed keeping the rate at 0.75%. The meeting took place without BOJ Governor Kazuo Ueda, who was hospitalized last week.
What will happen to government bond purchases
At the same time, the Bank of Japan will continue to reduce its purchases of government bonds (JGBs). Until January-March 2027, the monthly volume will decrease by approximately 200 billion yen per quarter. From April 2027, the regulator will halt the reduction and fix monthly purchases at around 2 trillion yen. By March 2030, the BOJ's government bond portfolio will shrink by about 36–39% relative to the level of June 2024, when the tapering program first began.
At the same time, the regulator retained flexibility: if long-term rates start to rise too quickly, the BOJ is ready to intervene promptly and increase bond purchases. The market reacted cautiously: the Nikkei 225 index rose by about 0.46%, and the yen strengthened slightly to 160.22 per dollar.
The rate hike deals a serious blow to carry trades — a strategy where investors borrow cheap yen and invest it in risk assets, including cryptocurrency. Each of the BOJ's previous rate hikes since 2024 resulted in a 20–32% drop in Bitcoin, and the current move also sent the leading cryptocurrency lower — to around $65,800. However, this time the sell-off was contained by the weak yen and the US-Iran deal on the Strait of Hormuz, so the market reaction was limited to a decline of just over 1%.
My analysis: This decision is a crucial signal of the normalization of Japan's monetary policy after decades of stimulus. For the crypto market, the BOJ rate hike remains a structural risk: each new step by the regulator will pressure carry trades and liquidity, but the scale of the correction will depend on global risk appetite and the geopolitical situation.