The Bank of Japan raises interest rate to 1%: a historic 30-year high and a blow to carry trade
The Bank of Japan (BOJ) has made a historic decision: the key interest rate was raised to 1%. This is the highest level since 1995. The decision was made on June 16 by a majority vote of 7 to 1, demonstrating consensus among the regulator's leadership, despite the absence of BOJ Governor Kazuo Ueda, who was hospitalized last week.
The rate increased by 0.25 percentage points from the previous 0.75%. Thus, Japan has returned to the 1% mark for the first time in 31 years, taking another step away from the era of ultra-cheap money. This event marks a dramatic reversal of monetary policy that kept the country in conditions of zero and negative rates for decades.
Why the regulator raised rates
The main reason for tightening policy was inflation. Prices accelerated amid expensive oil, driven up by the conflict around Iran. The Bank of Japan warned that core inflation could settle above the 2% target, requiring preventive 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, or about $73.5 billion, on currency interventions (buying yen to support the exchange rate), but the currency soon weakened again—this measure alone was not enough.
Only one board member, Toichiro Asada, opposed the rate hike. He believes that risks to production and employment are currently higher than the threat of price acceleration and proposed keeping the rate at 0.75%. His opinion, however, remained in the minority.
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, 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 Bank of Japan's government bond portfolio will shrink by about 36–39% relative to the level of June 2024, when the unwinding program first started. At the same time, the regulator has 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 moderately: 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 cryptocurrencies. Each of the BOJ's previous rate hikes since 2024 resulted in a 20–32% drop in Bitcoin, and this step also sent the leading cryptocurrency lower—to around $65,800. But this time, the crash 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 rate hike is not a one-time event but part of a long-term trend. Japan is gradually exiting the era of cheap money, creating structural pressure on risky assets. For the crypto market, this means increased volatility in the coming months, especially if the BOJ continues tightening. However, the weak yen and geopolitical factors may partially offset the negative effect, as we are seeing now. Investors should closely monitor the next BOJ meetings—each one could become a trigger for new market movements.