Japan's Core Inflation Remains Controversial, but Bitcoin Keeps the Yen in Balance

A paradoxical situation is drawing attention in Japan’s economy. While headline inflation saw a sharp decline in December, persistent core price pressures continue to exert pressure on the economy. In this complex environment, a strong correlation between Bitcoin and the Japanese yen indicates that both assets are reacting similarly to the central bank’s monetary policy decisions.

December Data Shows Inflation Slowdown and Expected Core Pressures

According to official data released by the Ministry of Internal Affairs and Communications on Friday morning, the headline Consumer Price Index (CPI) decreased by 2.1% year-over-year in December. This marks a significant drop from 2.9% in November and signals the first inflation slowdown in four months. When excluding fresh food, the core inflation rate fell from 3% in November to 2.4%.

However, a more detailed analysis reveals a different picture. The core-core inflation measure, which excludes food and energy prices, only declined to 2.9% in December, clearly indicating ongoing underlying pressures. As ING analysts also pointed out, when seasonal effects from energy subsidy programs are disregarded, there remains strong resilience in fundamental infrastructure prices.

The Bank of Japan’s Conservative Stance and Policy Signals

The Bank of Japan (BOJ) decided at the end of December to keep the policy interest rate steady at 0.75%, with broad consensus. In its announcement, the institution revised upward its growth and inflation forecasts for fiscal years 2025 and 2026, supporting expansionary fiscal policies. These complex signals suggest that the central bank prefers to remain uncertain about future policy normalization and adopts a wait-and-see approach.

The stickiness of persistent core inflation provides grounds for continuing policy normalization. However, the overall inflation slowdown is preventing policymakers from rushing, indicating that more cautious steps will be taken in the coming months.

Bitcoin and Yen Correlation: Connection with Rising Bond Yields

The observed close movement relationship between Bitcoin and the Japanese yen is significant for understanding market dynamics. As of writing, the 90-day correlation coefficient remains at 0.84, indicating that these two assets are moving almost in sync. While Bitcoin remains steady around $87,999, the Japanese yen weakened by over 0.20% against the US dollar, reaching 158.70.

This movement is closely linked to increases in 10-year Japanese government bond yields. Considering persistent fiscal concerns and ongoing core inflation, market participants expect the BOJ to continue raising interest rates, with bond yields rising by 3 basis points to 1.12%. Pre-election discussions about tax cuts earlier this week pushed yields to multi-year highs.

This rise in Japanese bond yields has become a key factor influencing global risk management. The increase in bond yields and returns has raised borrowing costs worldwide, including in the United States, and has put pressure on equities and risk assets such as Bitcoin.

Short-Term Price Flow and Market Intensity

Bitcoin experienced a decline of over 4.5% last Tuesday, falling to $88,000, but subsequently partially recovered in the following trading sessions, maintaining a stable level around $90,000 according to CoinDesk data. Its performance in the last 24 hours was recorded at -2.40%.

On-chain analysis reveals important points. Approximately 63% of the invested Bitcoin wealth is currently above the cost basis at prices over $88,000. Looking at supply concentration data, a dense zone exists between $85,000 and $90,000, with weaker resistance below $80,000.