Bitcoin and yen hold steady as Japan’s inflation eases and BOJ keeps interest rates unchanged

Bitcoin BTC$89,422.03 and the Japanese yen, which have recently moved in near lockstep, traded steady on Friday after Japan reported its first inflation slowdown in four months and the Japanese central bank kept interest rates steady.

The headline consumer price index (CPI), which represents the cost of
everyday stuff, slowed to a 2.1% year-on-year pace in December, marking a sharp drop from November’s 2.9%, the Ministry of Internal Affairs and Communications reported early Friday. The core inflation, which strips out fresh food prices, eased to 2.4% from 3% in November.

However, the underlying inflation remained sticky. The core-core inflation, which excludes fresh food and energy prices, edged down slightly to 2.9% in December from 3% in November. It shows that “aside from monthly fluctuations caused by energy subsidy programs, underlying price pressures remain persistent,” analysts at ING said.

“Persistent core-core inflation could support further policy normalisation, but slowing headline and core inflation may lead to a wait-and-see approach in coming months,” analysts added.

Hours later, the Bank of Japan (BOJ) held its benchmark borrowing cost steady at 0.75% in a near-unanimous decision. The central bank hiked its growth and inflation forecasts for fiscal 2025 and 2026, citing support for expansionary fiscal policy.

Bitcoin barely budged, as it’s price remained listless near $90,000. The Japanese yen fell by just over 0.20% to 158.70 per U.S. dollar. According to some strategists, the yen is likely to remain weak in the near term, a forecast that may be bearish for bitcoin given the recent strong positive correlation between the two assets. The 90-day correlation coefficient between the two assets was 0.84 as of writing.

The 10-year JGB yield rose 3 basis points to 1.12%, likely reflecting persistent fiscal concerns and trader expectations for continued BOJ rate hikes in months ahead given persistent underlying inflation and higher growth/inflation projections. The benchmark yield captures market views on rates, prices, and expansion.

Yields surged to multi-decade highs early this week on concerns that tax cuts promised by political parties ahead of the February election would worsen the fiscal situation.

The surge in Japanese yields pushed up borrowing costs worldwide, including in the U.S., creating a headwind for risk assets, including stocks and bitcoin. Bitcoin fell over 4.5% to $88,000 on Tuesday and has since recovered slightly to trade near $90,000, with prices largely flat over the past 24 hours, CoinDesk data show.

Read: Bitcoin Traders Should Pay Attention to Japan as Top Economist Warns of Debt Implosion

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