Hold Bitcoin and Japanese Yen Strategy Amid Inflation Stabilization and BOJ Policy

Digital asset and Japanese fiat currency markets show intriguing stability alongside the latest economic developments from the Land of the Rising Sun. Bitcoin and the Japanese yen have moved in unprecedented harmony, and on Friday, both assets continued to maintain momentum in the face of inflation data and the Bank of Japan’s monetary policy announcements.

Japan Inflation Slows, Core Price Pressures Persist

A significant slowdown in Japan’s main inflation rate has created optimism in the market, although structural challenges remain. The Consumer Price Index (CPI) dropped sharply to 2.1% in December, down from 2.9% the previous month. This marks the first deceleration in four months according to official data from the Ministry of Internal Affairs and Communications.

However, a deeper picture reveals greater complexity. Core inflation, which excludes fresh food prices, fell to 2.4% from 3% in November. Meanwhile, core-core inflation, which eliminates both fresh food and energy, only saw a slight decrease to 2.9% from 3% in the previous period. ING analysts note that “underlying price pressures remain persistent,” indicating that monthly fluctuations are driven by energy subsidy programs rather than fundamental declines in production costs.

Bank of Japan Maintains Interest Rates, Raises Economic Outlook

The Bank of Japan’s decision to keep the benchmark interest rate at 0.75% signals broader optimism. The central bank raised its growth and inflation projections for fiscal years 2025 and 2026, reflecting confidence in the government’s supportive fiscal policies.

Although the decision was nearly unanimous, ING analysts offer a nuanced perspective: “Persistent core inflation at high levels could support further policy normalization, but slowing core and headline inflation are likely to lead to a wait-and-see approach in the coming months.” This signals that the BOJ remains cautious about further rate hikes.

Bitcoin and Yen: Strong Correlation and Market Implications

An interesting trend has emerged with Bitcoin and the Japanese yen moving in close tandem. The 90-day correlation coefficient between the two assets stands at 0.84, indicating a very strong positive relationship. Understanding this dynamic is crucial for traders aiming to strategically hold their positions.

Bitcoin continues to trade relatively flat around $88,000 at the time of writing, reflecting cautious market sentiment. The Japanese yen has dipped slightly over 0.20% to 158.70 per US dollar. Market strategists project that the yen is likely to remain weak in the short term—a factor that could put downward pressure on Bitcoin given their positive correlation with exchange rate movements.

Bond Yields and Risks on Risk Assets

The 10-year Japanese government bond (JGB) yield rose 3 basis points to 1.12%, reflecting market expectations of potential BOJ rate normalization in the future. This yield increase is also influenced by ongoing fiscal concerns and anticipation of the impact from promised tax cuts ahead of the February elections.

The broader rise in yields has created ripple effects globally. The surge in yields in Japan has driven up borrowing costs worldwide, including in the United States, exerting significant pressure on higher-risk assets—such as stocks and cryptocurrencies. Bitcoin briefly declined over 4.5% toward the $88,000 level mid-period but has since recovered some losses, reflecting market adjustments to changing macroeconomic conditions.

Hold Strategy Amid Market Volatility

For investors considering holding their Bitcoin and other digital assets, the current environment demands attention to Japan’s dynamics. The increasing correlation between Bitcoin and the yen, combined with BOJ policy uncertainties, adds complexity to portfolio management.

While gold has surged spectacularly beyond $5,500 per ounce with highly optimistic sentiment, Bitcoin remains behind in the “real asset” narrative and continues to trade as a high-beta risk asset. This context underscores the importance of careful decision-making in maintaining exposure to cryptocurrencies amid a constantly evolving macro landscape.