The Bank of Japan (BOJ) Governor Kazuo Ueda has reiterated the central bank's commitment to raising interest rates further if economic conditions and inflation expectations align. This announcement comes as the BOJ diverges from the U.S. Federal Reserve's anticipated policy of cutting rates, leading to potential market impacts.
BOJ's Policy and Market Reactions
In a document submitted to a government panel led by Prime Minister Fumio Kishida, Ueda emphasized that Japan's economic environment remains accommodative, with inflation-adjusted interest rates still negative, even after the July rate hike. This policy stance has contributed to the strengthening of the yen, with the USD/JPY pair dropping from 147 to 145.85.
The yen's rally and BOJ's tightening measures have put pressure on risk assets, including cryptocurrencies. Bitcoin (BTC) dropped by 0.4% to $58,920, while S&P 500 futures also slipped by 0.5%.
Implications for Risk Assets and Global Markets
The BOJ's continued tightening could lead to further yen strength, particularly as the Fed and other central banks are expected to ease monetary policy. This dynamic might force traders to unwind yen carry trades, which have historically destabilized global markets and contributed to significant declines in risk assets like BTC.
Former BitMEX CEO Arthur Hayes has warned that the unwinding of yen carry trades could derail positive market sentiment unless central banks expand their balance sheets and increase the money supply.
Read more at CoinDesk.
