Japan’s BOJ Holds Rates at 0.75% Amid 45-Month Inflation, Crypto Risks Rise
The Bank of Japan (BOJ) maintained its benchmark interest rate at 0.75% on Friday, despite revising its economic forecasts upwards....
Quick overview
- The Bank of Japan held its interest rate steady at 0.75% despite upward revisions in economic forecasts, with one board member dissenting due to inflation concerns.
- Revised forecasts predict real GDP growth of 0.9% in 2025 and 1.0% in 2026, while core consumer prices are expected to rise 3% in 2025, exceeding the inflation target.
- Political instability is heightened by the announcement of a snap election on February 8th, with proposals including a temporary reprieve from food sales tax and a record budget.
- Japan's economic turmoil poses risks for cryptocurrency investors, particularly due to potential yen appreciation and rising bond yields affecting capital flows.
The Bank of Japan (BOJ) maintained its benchmark interest rate at 0.75% on Friday, despite revising its economic forecasts upwards. The decision to keep rates steady came in an 8-1 split vote, with board member Hajime Takata the lone dissenter on a 1% rate hike – and he went public with his concerns over rising inflation and the slowly improving global outlook on Friday.
The BOJ’s revised economic forecast sees real GDP growth of 0.9% in 2025 and 1.0% in fiscal 2026, up from the 0.7% it was expecting back in October. Core consumer prices are now expected to rise 3% in ’25 and 2.2% in ’26 – which is about as much as you’d want to see given the inflation target is 2% – and that’s been a real challenge for a while now : December’s headline inflation came in at 2.1%, marking the 45th month in a row that we’ve gone over that target. That’s a record, and a testament to just how stubbornly high inflation has been.
Political Turmoil Further Unsettles the Market
Just when things couldn’t get much more complicated, Prime Minister Sanae Takaichi announced the dissolution of Japan’s lower house, which basically means we’re getting a snap election on February 8th, with the shortest campaign period on record coming in at just 16 days.
Some of the key policy proposals on the table include:
- A 2-year reprieve from the 8% food sales tax, which might just help ease the cost-of-living crunch a little bit
- A record $783 billion budget, which is raising all sorts of concerns about where the money is coming from and what it’s going to do to the country’s debt levels
🚨 BREAKING: The Bank of Japan maintained its key rate at 0.75%, in line with market forecasts.
Yet, board member Hajime Takata cast a lone vote for a hike to 1.0%, arguing inflation pressures are mounting and global recovery supports tightening.#BOJ Forecasts:
✔️Real GDP… pic.twitter.com/R5JH0bdInY
— MacroMicro (@MacroMicroMe) January 23, 2026
The markets have already responded to all this, with the yen slumping 4.6% against the dollar since October and trading just shy of 158.97, while Japanese government bonds have seen yields just about as high as we’ve ever seen.
Cryptocurrency Market Risks Get Even Higher
For people invested in the crypto markets, Japan’s macroeconomic turmoil is making things much more complicated. The reason is that many of our investors use the low-yielding yen to borrow cash to invest in assets that pay much more, like Bitcoin.
The potential risks here are:
- A sudden appreciation in the yen, which would force a lot of people to start selling their crypto holdings pretty quickly
- Rising bond yields in Japan, which could pull capital out of global risk assets, and into safer havens
We’ve actually seen this kind of thing happen before: in August 2024, Bitcoin got absolutely hammered when yen carry trades unwound amid speculation of another BOJ rate hike. With Governor Kazuo Ueda about to give a speech soon, you can bet the farm that the markets are going to be watching his comments very closely to see if there’s any sign of another rate hike on the cards – and whether he’s going to try and balance inflation control against the need for political stability.
To keep on top of all this, crypto investors are going to want to keep an eye on:
- How quickly will the BOJ normalize its monetary policy
- Whether the yen just keeps on going down in value
- How many of these leveraged investors are still exposed to the market
One thing’s for sure : given the state of the Japanese economy and the BOJ’s policy outlook, it’s going to be a big year for digital assets in 2025.
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