Japanese Yen and Bitcoin Move in Tandem as BOJ Maintains Interest Rates

Bitcoin movement and the Japanese currency show unprecedented synchronization. As the Bank of Japan (BOJ) maintains its monetary policy, both assets respond calmly to the complex dynamics of the Japanese economy.

Inflation Slows Down, But Price Pressures Persist

Latest data from last week show mixed developments for Japan. The core Consumer Price Index (CPI) recorded a significant slowdown to 2.1% year-over-year in December, down sharply from 2.9% in November. This marks the first slowdown in four months.

However, underlying price growth remains a concern. Core inflation, which excludes fresh food prices, decreased to 2.4% from previous 3%. Yet, core-inflation metrics—excluding both fresh food and energy—only experienced minor adjustments to 2.9% from 3%. Analysts at ING assess that fundamental price pressures still persist behind the monthly fluctuations.

BOJ Decision: Keep Interest Rates Steady, Projections Rise

In an almost unanimous decision, the BOJ maintained its benchmark interest rate at 0.75%. The central bank also revised its growth and inflation projections for fiscal years 2025 and 2026 upward, citing support for the government’s expansionary fiscal policies.

This decision reflects a cautious approach from monetary authorities: reluctant to raise interest rates further while acknowledging stronger growth prospects. This dynamic directly influences market expectations for the Japanese currency’s value in the coming months.

Japanese Yen Weakens, Bitcoin Stabilizes Below $88,000

Following the BOJ announcement, the Japanese yen dipped slightly more than 0.20%, trading at 158.70 per US dollar. Meanwhile, bitcoin remains sluggish and stable around $87,99K—down 2.40% in the last 24 hours—with minimal movement throughout the trading day.

This yen weakness aligns with the rise in Japanese 10-year government bond (JGB) yields, which increased by 3 basis points to 1.12%. The jump reflects market concerns over Japan’s fiscal position and expectations of BOJ interest rate hikes in the future amid persistent inflation pressures.

Strong Correlation: When Bitcoin Follows the Japanese Yen

The most interesting aspect is the close relationship between bitcoin and the Japanese yen. With a 90-day correlation coefficient of 0.84, these two assets move almost in sync in the short term. This means when the yen weakens, bitcoin tends to follow the same direction.

Market strategists estimate that the yen will remain weak in the coming months—potentially bearish for bitcoin given its dependence on Japanese currency movements. If the Japanese government continues its expansionary fiscal policies as planned ahead of the February elections, pressure on the yen is likely to increase.

Bond Yields Jump, Pressure on Risk Assets

The 10-year JGB yield previously reached multi-decade highs earlier this week, driven by concerns that promised tax cuts by political parties will worsen Japan’s fiscal deficit. This yield surge is not just a local phenomenon—rising borrowing costs spill over into global markets, including the United States.

As a result, risk assets like stocks and bitcoin face selling pressure. Bitcoin briefly dropped more than 4.5% to $88,000 last Tuesday, before partially recovering and stabilizing around $87,99K at the time of writing.

Long-Term Outlook: Gold Rises, Bitcoin Lags

Amid this uncertainty, gold shows strength with prices jumping above $5,500 per ounce. This nominal surge has created a lively speculative atmosphere, with market value fluctuating around $1.6 trillion in a single day.

Sentiment indicators like the Fear & Greed Index for gold show high optimism towards the precious metal. Conversely, similar indicators in the crypto market remain in fear. Bitcoin, despite following the narrative of a “real asset,” is still treated as a high-beta risk asset. Investors seeking store of value prefer physical gold and silver over digital assets.

The Japanese currency remains a key variable in this equation. When the yen weakens, its impact on global capital flows and crypto market sentiment cannot be ignored.