The Bank of Japan raised its interest rate to 1% — a historic high in 30 years and a signal for the crypto market.
The Bank of Japan (BOJ) has decided to raise its key interest rate to 1%. This is the highest level since 1995. 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 away from the era of ultra-cheap money that lasted for decades.
Why the regulator decided to raise rates
The main driver of this move was inflation. Prices accelerated amid expensive oil, which was pushed up by the conflict surrounding Iran. The Bank of Japan 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, making imports more expensive, along with the daily expenses of Japanese households. In May, authorities spent almost ¥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, Toyohiro Asada, voted against the increase. He believes that 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 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 started.
At the same time, the regulator 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.
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 has resulted in a 20–32% drop in Bitcoin, and the current move also sent the first 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 has so far been limited to a decline of just over 1%.
My analysis: The BOJ's decision is a tectonic shift for global liquidity. The yen has been the main source of cheap financing for speculators for decades, and its appreciation will inevitably reduce risk appetite. For the crypto market, this means increased volatility in the coming weeks, especially if the yen continues to strengthen. However, short-term factors, such as geopolitics, are currently softening the blow—but this is a temporary respite.