Bank of Japan Set to Hike to 1.25%, Highest Since 1995. Bitcoin Isn't Flinching Yet

The Bank of Japan (BOJ) is expected to raise its policy rate to 1.25% on Thursday‑Friday, the highest level since April 1995. Short‑term Japanese bond yields have already surged, and the yen, government bonds and Tokyo equities are being repriced sharply.

Short‑Term Yield Spike

Japan’s six‑month bill yield closed near 1.335% on Friday, up from negative territory just two years ago. The three‑month yield also hit 1.25%, and the six‑month yield reached 1.34%, marking the highest levels in more than three decades.

Long‑Term Yield Moves

The 10‑year government bond yield rose to 3% this month, a level not seen since 1996, while the two‑year yield sits around 1.85%.

Fiscal Drivers, Not Inflation

July consumer‑price inflation was 1.9% year‑over‑year (core 1.8%), below the 2% target, indicating that the yield rise is driven more by fiscal factors. The finance ministry requested a record ¥143 trillion for the next fiscal year and raised its assumed long‑term bond rate to 3.8%.

Impact on Traditional Assets

• The yen has appreciated about 6% from its July low after a joint intervention of ¥15.4 trillion by Japan and the United States.
• Japanese holdings of U.S. Treasuries fell by $122.6 billion between February and June.
• The Nikkei 225 has dropped 8.4% over the past month and trades roughly 13% below its June record.

Bitcoin’s Divergence

Bitcoin traded near $77,721, up 0.8% in the last 24 hours, showing resilience despite the yen shock and broader market weakness. In August 2024, a BOJ hike to 0.25% coincided with a 12.4% drop in the Nikkei and a fall in Bitcoin from about $70,000 to $49,000. The upcoming 1.25% hike, five times larger, will test whether Bitcoin continues to ignore Japanese monetary tightening.

What Could Shift the Trend?

A hawkish signal about the pace of future hikes, rather than the current increase, would be needed to break the current divergence between Japanese assets and Bitcoin.