Bitcoin and Yen in Divergent Movement While Underlying Inflationary Pressures Persist in Japan

The Japanese macroeconomic scenario remains complex this week. While overall inflation has slowed significantly, underlying price pressures remain resilient, creating a dilemma for policymakers. Bitcoin and the yen continue to move relatively stably, reflecting this ambiguous economic dynamic that characterizes the market at the start of the year.

Overall Inflation Slows, but Underlying Pressures Remain Firm

Japan’s consumer inflation showed relief in December, with the core price index falling to 2.1% year-over-year, down from 2.9% in the previous month. This decline marks the first slowdown in four months, suggesting that government subsidy measures are beginning to have an effect in constraining price pressures.

However, the outlook is less optimistic when looking at underlying metrics. Core inflation, which excludes fresh food, receded to 2.4% from 3% in November. More concerning, core-core inflation—filtering out both fresh food and energy—only slightly decreased to 2.9% from 3% the previous month.

As ING analysts highlight, these underlying inflation pressures reveal that “beyond the monthly fluctuations caused by subsidy programs, fundamental price pressures remain resilient.” This persistence suggests that monetary policies will still face the need for gradual normalization, even amid relief in overall inflation.

BOJ Holds Rates Steady While Revising Projections Upward

Hours after the release of inflation data, the Bank of Japan maintained its benchmark lending rate at 0.75%, in a nearly unanimous decision. Keeping rates unchanged reflects caution in an environment still marked by significant underlying pressures.

However, the central bank revised upward both its growth and inflation projections for fiscal years 2025 and 2026. This positive revision, along with acknowledgment of support from expansionary fiscal policy, signals that monetary authorities remain attentive to structural inflation risks. As analysts note, this dynamic could “support further normalization of monetary policy in upcoming periods, although relief in overall inflation may lead to a more wait-and-see stance in the immediate months.”

Bitcoin Virtually Unchanged, Yen Weakens

In the asset market, Bitcoin traded nearly flat, priced close to $87,250, with a -2.48% change in the last 24 hours. The subdued performance of the leading digital asset contrasts with the volatility seen in previous days, when BTC fell below $88,000 in response to rising government bond yields.

The Japanese yen, in turn, depreciated slightly, reaching 158.70 per US dollar. Strategists point out that the Japanese currency is likely to remain weak in the short term, a dynamic driven by the interest rate differential between Japan and other economies.

The Bitcoin-Yen Correlation and the Risks of Rising Yields

A relevant phenomenon continues to be the synchronization between Bitcoin and the yen. With a 90-day correlation coefficient reaching 0.84, the two assets have established a notably strong connection. This relationship means that yen weakness tends to correlate with pressure on BTC, posing a challenge for crypto investors.

The dynamic reflects pressures generated by the increase in yields on Japanese government bonds (JGBs), which rose 3 basis points to 1.12%. Although modest historically, this movement reflects persistent fiscal concerns and market expectations that the Bank of Japan will implement further rate hikes in the coming quarters, especially considering that underlying inflation pressures remain elevated despite the decline in overall inflation.

Rising yields on Japanese bonds have a global ripple effect, increasing borrowing costs in markets like the United States, which reinforces resistance for high-risk assets, including tech stocks and Bitcoin.

Why Bitcoin Falls Behind in a Persistently Inflated Environment

Despite the narrative around “real assets” as protection against monetary erosion, Bitcoin has been trading differently. While physical gold and silver gain favor among investors seeking a store of value— with gold surpassing $5,500 per ounce—Bitcoin remains characterized as a high-volatility risk asset.

This difference in treatment reveals that, while underlying inflation pressures persist globally, investors are reallocating capital into traditional protection instruments. JM Bullion’s gold sentiment index signals extreme optimism in precious metals, while similar indicators in the crypto market continue to signal caution and fear.

The scenario suggests that, as structural price pressures persist in developed economies, preference for gold and traditional monetary instruments may continue to take priority over allocations in crypto assets, regardless of macro narratives surrounding Bitcoin.