BoJ Rate Pause in Focus as Yen, USD/JPY, and Crypto Markets React

The Bank of Japan (BoJ) is widely expected to keep its benchmark interest rate unchanged at 0.75% following the conclusion of its two-day monetary policy meeting on Friday. After raising rates to a three-decade high in December, policymakers appear inclined to pause and evaluate how the economy absorbs tighter financial conditions before considering additional hikes. This cautious stance reflects the BoJ’s broader strategy of gradual policy normalization amid lingering uncertainties.

BoJ Governor Kazuo Ueda is anticipated to reiterate the central bank’s commitment to a slow and measured tightening path. Investors will pay close attention to his post-meeting press conference for any guidance on the timing and pace of future rate increases. While markets have fully priced in a January rate pause, expectations remain that the BoJ will keep the door open to further tightening if inflation and wage growth continue to strengthen.

In December, the BoJ approved a 25-basis-point hike, with meeting minutes revealing that some policymakers favored additional tightening due to persistently negative real interest rates. However, a back-to-back hike is largely ruled out, especially as political uncertainty grows. Prime Minister Sanae Takaichi’s call for snap elections and proposals for temporary tax suspensions have added fiscal concerns, weighing on the yen and pushing long-term Japanese bond yields to record highs.

The yen has weakened since election speculation intensified, leaving USD/JPY near an 18-month high around 159.50 and roughly 0.7% higher year-to-date. Although recent US dollar softness has provided limited support to the yen, markets remain sensitive to any BoJ signals that could influence currency direction.

Beyond foreign exchange, the BoJ’s decision has implications for crypto markets. Higher Japanese rates could prompt the unwinding of yen-funded carry trades, potentially increasing Bitcoin volatility and pressuring risk assets. A more hawkish tone may weigh on crypto in the short term, while a cautious message could ease risk sentiment and offer temporary relief as Bitcoin consolidates.

Overall, the BoJ’s steady approach underscores its aim to normalize policy without derailing economic growth, while global markets closely watch for clues on Japan’s next move.