Bank of Japan buoys Bitcoin rally with signal on rates

Crypto just got good news from Tokyo.

In response to the recent spate of severe market volatility, the Bank of Japan signalled Wednesday that further interest rate increases in 2024 are unlikely.

The move could relieve pressure on Bitcoin, which moves in lockstep with stocks as a “risk-on” asset susceptible to monetary policy set by the Federal Reserve, and to a lesser degree, other central banks.

“Japan’s economy is not in a situation where the bank may fall behind the curve if it does not raise the policy interest rate at a certain pace,” Deputy Governor Shinichi Uchida said during a speech in Japan.

In other words, the Japanese economy may not need another hike.

A welcome boost

That’s a welcome boost for Bitcoin, which plunged 24% from August 2 to Monday, according to CoinGecko data. Ether also saw a significant fall, losing 31% in the same period.

Since then Bitcoin has rebounded 15%, to $57,180, in mid-morning trading UK time. The rest of the crypto market has followed suit.

A weak jobs report in the US last week triggered a selloff last week worldwide as investors worried the Fed had erred by not lowering rates this summer.

The Bank of Japan also contributed to the downturn when it raised interest rates by 0.25% in an effort to combat inflation, which resulted in an appreciation of the yen.

Pressure

This rise in the yen’s value exerted pressure on Japanese investors who had leveraged positions in various securities, including US stocks.

Following a 12% plunge on Monday, the Japanese stock market rebounded 10% Tuesday and closed Wednesday up another 2.3%.

Despite the recent market swings, Uchida was optimistic about the US economy, suggesting it would likely achieve a soft landing. He attributed the recent rise in Japanese stock prices to improvements in corporate profitability.

“Since it is unlikely that there have been significant changes in economic fundamentals in both countries, the reaction to the US economic indicators for a particular month seems too large,” he said.

Uchida reaffirmed the BOJ’s commitment to closely monitoring market developments and conducting appropriate monetary policy.

“Let me reiterate my view that the Bank needs to maintain monetary easing with the current policy interest rate for the time being,” he said.

Callan Quinn is DL New’s Hong Kong-based correspondent. Get in touch at [email protected].