Bitcoin and Yen: When Correlation Coefficient Reaches 0.84 Amid BOJ Policy Changes

In modern financial market analysis, the coefficient is an important tool for measuring how closely two assets move together. The relationship between Bitcoin and the Japanese yen shows this clearly: the 90-day correlation coefficient reaches 0.84, a figure rarely seen before. On Friday, these two assets traded steady in line with the release of Japanese economic data and monetary policy decisions from the Central Bank of Japan.

Coefficients Are Key to Understanding the Relationship between BTC and the Japanese Yen

For investors who monitor market dynamics, understanding that coefficients are a measure of the degree of entanglement between two instruments is fundamental. A value of 0.84 indicates a very strong positive correlation between Bitcoin and the Japanese yen. This means that when one of the assets moves up, the other tends to follow in a similar pattern. This phenomenon reflects how economic tensions in Japan, the world’s third-largest market, can directly affect the sentiment of the global digital asset market.

Japan’s inflation shows signs of slowing, although fundamentals remain strong

On Friday morning, Japan’s Ministry of Interior and Communications reported the main Consumer Price Index (CPI) fell significantly to 2.1% year-over-year in December, down from 2.9% the previous month. This movement signals a slowdown in inflationary pressures that occurred for the first time in the last four months. Meanwhile, core inflation—which ignores food price volatility—also declined to 2.4% from 3% previously.

However, analysts from ING warned that core-core inflation (which eliminates both fresh food and energy) declined only slightly to 2.9%, remaining at high levels. “Fundamental price pressures remain persistent behind the monthly slowdown,” they said. This creates a paradoxical scenario: a slowdown in headline headline inflation gives room for a wait-and-see approach from central banks, but persistent underlying pressures may prompt further policy normalization in the coming quarters.

Bank of Japan Keeps Interest Rates On Hold, But Raises Expectations

A few hours after the release of inflation data, the Bank of Japan announced a decision in a policy session with almost all members agreeing to keep the benchmark interest rate at 0.75%. Even without a rate change, the BOJ surprised the market by raising its economic growth and inflation projections for the 2025 and 2026 fiscal years. This increase in expectations is supported by an optimistic view of the support from the government’s expansionary fiscal policy.

This more ambitious projection signals that the BOJ remains vigilant about price dynamics, although it currently chooses not to raise interest rates. Market participants interpreted this as a strong indication that the next rate hike may come in the next few months, especially if fundamental price pressures continue to remain at high levels.

Bitcoin Stabilizes Around $85,000: The Impact of the Correlation Coefficient with the Yen

Bitcoin barely moved in Friday’s trading, remaining located in the $85,160 area with a 24-hour decline of 4.94%. The close correlation with the Japanese yen—reflected in the strong coefficient of 0.84—means that exchange rate movements have a direct impact on BTC sentiment. The Japanese yen itself weakened slightly above 0.20%, trading at 158.70 per US dollar.

The yen’s weakness and the rise in the yield on Japan’s 10-year government bond (JGB) by 3 basis points to 1.12% created a complex environment for risky assets such as Bitcoin. The surging yields reflect market concerns over Japan’s fiscal sustainability amid planned tax cuts ahead of the February election, as well as expectations for a tighter monetary policy path in the future.

When Japanese Pressure Spreads to Global Markets

The increase in government bond yields in Japan did not stop at the island. This increase has driven up borrowing costs globally, including in the United States, creating selling pressure across various risk asset classes. Bitcoin felt this impact clearly at the start of the week, dropping more than 4.5% to $88,000 on Tuesday, before finally recovering some of the losses to trade in the $90,000s area last weekend.

This phenomenon shows how global financial markets stay connected through various transmission channels. Instability in Japan—the country with the highest government debt relative to GDP—has the potential to create ripples that spread around the world, affecting assets from stocks to digital currencies.

Broader Market Context: Gold Steals the Spotlight

While Bitcoin struggled with volatility fueled by Japan’s dynamics, the price of gold surged past $5,500 per ounce, creating a surge in face value of about $1.6 trillion in a single trading day. Sentiment indicators such as the Fear & Greed Index for gold show overflowing optimism, in sharp contrast to similar indices in the crypto market that remain wedged into fear territory.

Bitcoin lags behind the burgeoning “real asset” narrative, trading with the characteristics of high-beta risk assets while investors looking for a store of value are more inclined towards physical gold and silver. This divergence underscores how the market’s perception of Bitcoin and traditional commodities continues to evolve amid macroeconomic uncertainty.

Conclusion: Monitoring Coefficients for Investment Strategies

The close relationship between Bitcoin and the Japanese yen, as illustrated by the correlation coefficient of 0.84, provides an important lesson for investors. Changes in the Japanese market—both in terms of inflation, interest rates, and fiscal—are no longer just local problems, but waves that can spread to the global market. Keeping an eye on the correlation coefficient and dynamics of Japan’s macroeconomy is becoming an integral part of digital asset portfolio risk management in this new era.