Bank of Japan raises interest rate to 1%, highest level since 1995

The Bank of Japan (BoJ) is raising its policy rate by 25 basis points to 1.0%. The policy decision, adopted on 16 June with seven votes in favour and one against, takes effect on 17 June. This marks the highest interest rate level in Japan since 1995, making the decision a historic moment for the Japanese economy.

Higher Oil Prices as Driving Force

The BoJ indicates that rising oil prices could feed through to consumer prices via pass-through by companies. This creates upside risks to underlying inflation, which is already above the 2% target. It is one of the main reasons why the central bank has decided to tighten its policy once again.

At the same time, the BoJ states that a moderate financial environment will be maintained to continue supporting economic activity. The central bank adjusts the degree of monetary accommodation based on the current economic situation, price developments and financial conditions. The pace and timing of further adjustments depend on how accurately expectations materialise and which risks emerge.

Impact on the Crypto Market

A higher interest rate in Japan traditionally has implications for risky investments worldwide. When the yen strengthens on the back of rate hikes, funds flow out of so-called carry trades, where investors borrow cheaply in Japan to invest elsewhere, including in crypto. Such macroeconomic shifts thus indirectly affect the crypto market.

Whether this rate decision will have immediately visible effects on Bitcoin and other cryptocurrencies remains to be seen. Investors are closely monitoring developments in Japanese monetary policy, as Japan, as a major economy, plays a significant role in the global financial system.