The Bank of Japan raised its interest rate to 1%: a return to normalcy and a blow to carry traders.
The Bank of Japan (BOJ) has made a historic decision, raising its key interest rate to 1%. This is the highest level since 1995, marking a definitive break from the era of ultra-cheap money. The decision was made on June 16 by a majority vote of 7 to 1.
The rate increased by 25 basis points from the previous 0.75%. Thus, Japan has returned to the 1% mark for the first time in 31 years, taking another decisive step towards normalizing monetary policy.
Why the regulator decided to raise rates
The main catalyst was inflation. Prices accelerated amid expensive oil, which was pushed up by the conflict surrounding Iran. The BOJ warned that core inflation could settle above the 2% target, requiring preemptive measures.
The weakness of the yen also played a role. By June, the JPY exchange rate had fallen to around 160 per dollar, making imports more expensive, along with the daily expenses of Japanese households. In May, authorities spent nearly ¥11.7 trillion (about $73.5 billion) on currency interventions, but the yen soon weakened again—this measure alone was insufficient.
Only one board member, Toyohiro Asada, voted against the increase. 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
Simultaneously, the BOJ will continue to reduce its purchases of government bonds (JGBs). Until January–March 2027, their monthly volume will decrease by approximately ¥200 billion per quarter.
From April 2027, the regulator will halt the reduction and fix monthly purchases at around ¥2 trillion. 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 has maintained 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.
Impact on cryptocurrencies and carry trade
The rate hike hits the carry trade—a strategy where investors borrow cheap yen and invest it in risky assets, including cryptocurrency. Each of the BOJ's previous rate increases 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 has so far been limited to a decline of just over 1%.
Analytical commentary from Cryptalist: The BOJ's decision signals that the era of cheap money in Japan has definitively ended. For the cryptocurrency market, this means a gradual reduction in liquidity flowing from the carry trade. However, given the ongoing geopolitical tensions and the weakness of the yen, we are likely to see not a sharp crash, but rather volatility with a downward trend. Investors should reconsider their strategies and be prepared for a longer correction period.