BOJ Decision: 1% Rate — A Historical Milestone and a Threat to Carry Trade
The Bank of Japan (BOJ) raised 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 rate increased by 25 basis points — from 0.75% to 1.0%. Thus, Japan 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 catalyst was inflation. Prices accelerated amid rising oil prices, triggered by the conflict surrounding Iran. The BOJ warned that core inflation could settle above the 2% target level.
The weakness of the yen also played a role. By June, the JPY exchange rate had fallen to around 160 per dollar, causing imports to become more expensive, along with household daily expenses. In May, authorities had already spent nearly ¥11.7 trillion (about $73.5 billion) on currency interventions, but the yen weakened again — this measure alone proved insufficient.
Only one board member, Toichiro Asada, opposed 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.
Plan to reduce government bond purchases
Simultaneously, the BOJ continues to scale back its government bond (JGB) purchase program. Until January-March 2027, the monthly volume will decrease by approximately ¥200 billion per quarter.
From April 2027, the regulator will fix monthly purchases at around ¥2 trillion. By March 2030, the BOJ's government bond portfolio will shrink by 36–39% relative to the level of June 2024, when the unwinding program first started.
However, the regulator retained flexibility: if long-term rates start to rise too quickly, the BOJ is ready to intervene promptly and increase 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 carry-trade and cryptocurrencies
The rate hike hits carry-trade — a strategy where investors borrow cheap yen and invest it in risk assets, including cryptocurrencies. Each of the previous BOJ rate hikes since 2024 resulted in a 20–32% drop in Bitcoin. The current move also sent the leading cryptocurrency lower — to around $65,800. But 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%.
Cryptalist Analysis: The BOJ's decision is a tectonic shift for global capital markets. The gradual but steady tightening of the Bank of Japan's policy is slowly eliminating one of the main sources of cheap liquidity that has fueled risk assets for decades. For the crypto market, this means a structural increase in volatility: each new BOJ move will trigger a reassessment of carry-trade strategies and short-term but sharp corrections.