The era of negative interest rates in Japan is over! What impact does the appreciation of the yen have on Bitcoin?

On the 19th, the Bank of Japan held its second day of monetary policy meeting. The result of the meeting was as predicted by the market, and it was officially announced that the benchmark interest rate would be raised from -0.1% to 0-0.1%. This marked the first rate increase since 2007, ending an eight-year era of negative interest rates.

What impact will the end of the negative interest rate era have?

With this major change in the Bank of Japan’s policy, the Japanese economy is about to face new challenges and opportunities. This change is expected to have a profound impact on Japan's domestic and global economies. The Bank of Japan faces important challenges in balancing economic growth and inflation control, while also dealing with its massive balance sheet. In the next few years, the global economy will pay close attention to the Bank of Japan's response measures and policy adjustments to ensure stable economic growth while avoiding the risk of inflation. This will require the Bank of Japan to maintain flexibility and determination in policy formulation, while cooperating with other central banks and international institutions to jointly maintain global financial stability.

Is it bad for the Japanese stock market?

On the other hand, the Bank of Japan will face the challenge of adjusting its massive balance sheet. Currently, the bonds held by the Bank of Japan account for about half of the total Japanese bond market, reaching 1,200 trillion yen (about 8 trillion U.S. dollars).

In the process of policy adjustment, the Bank of Japan may consider setting a new yield cap or choose to abandon the strategy and continue to announce the number of bonds it intends to buy each month.

At the same time, the Bank of Japan will also need to deal with its stock investments. Bank of Japan Deputy Governor Uchida Shinichi previously pointed out that terminating stock purchases is a natural process when policy normalization occurs. Currently, the Bank of Japan has become the largest holder of Japanese stocks, indicating that it is unlikely to resume regular purchases of ETFs and real estate investment trusts.

According to an interview with Bloomberg last week, UBS Chief Investment Officer Kelvin Tay said he believed the appreciation of the yen could have an adverse impact on Japanese stocks.

“An appreciation may cause Japanese stocks to underperform, so we are actually very wary of this...”

Will the appreciation of the yen help Bitcoin?

It is worth noting that among the world's major legal currencies (US dollar, euro, Japanese yen), the Japanese yen has been the weakest recently. Therefore, the Japanese yen has been trading at a premium against Bitcoin, and Japan as a Among the world's top four economies, investors have long been concerned about the impact of the uncertainty of the country's central bank's policy risks on traditional and cryptocurrency markets.

The Bank of Japan’s policy of maintaining low interest rates and high liquidity has long attracted many yen trading arbitrage traders. If the Bank of Japan withdraws its liquidity support policy, it may cause the yen to appreciate. This change will be significant. Reduce the effectiveness of the yen's carry trade, thereby affecting the risk appetite of financial markets.

As Japan is the world’s fourth largest economy, a large amount of capital may shift to higher-risk assets such as technology stocks or cryptocurrencies in the future.

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