News about the yen and Bitcoin: contained volatility after BOJ's stable decision

The latest market news shows a paradoxical scenario in Japan: while inflation is significantly retreating, underlying price pressures remain resilient. The yen, for its part, is experiencing a gradual weakening that complicates the outlook for Bitcoin, whose recent correlation with the Japanese currency has reached all-time highs.

Inflation in Japan slows but underlying pressures persist

Japan’s most recent economic news reveals a positive sign for the first time in four months. The Consumer Price Index (CPI) slowed significantly to 2.1% year-on-year in December, a marked decline from 2.9% recorded in November, according to the Ministry of Internal Affairs and Communications. Simultaneously, core inflation, which excludes fresh food, retreated from 3% to 2.4%.

However, core inflation—excluding fresh food and energy—barely decreased to 2.9%, remaining stubbornly high. ING analysts highlight that “beyond monthly fluctuations driven by energy subsidy programs, underlying price pressures remain persistent,” a warning that suggests the underlying inflation problems have not yet been resolved.

Weak yen and Bitcoin: a historic correlation in full swing

The yen experienced a marginal weakening, falling just over 0.20% to 158.70 per US dollar. This depreciation is not accidental: it reflects market expectations regarding the Bank of Japan’s stance on future rate hikes. The Japanese currency has shown an extraordinary positive correlation with Bitcoin, with a 90-day correlation coefficient of 0.84 at the end of the period.

The yen’s weakening typically favors Bitcoin in the short term, although some strategists warn that this correlation could reverse if expectations change. BTC price remained relatively stable near $88.31K, with a 0.69% drop in 24 hours, avoiding abrupt movements despite the underlying volatility of the global market.

BOJ chooses the path of prudence: rates unchanged but mixed signals

In an almost unanimous decision, the Bank of Japan maintained its reference rate at 0.75%, rejecting any immediate adjustment. However, the institution raised its growth and inflation projections for fiscal years 2025 and 2026, citing support for expansionary fiscal policy as justification.

This combination of decisions generates conflicting signals: on one hand, the pause in rate hikes suggests caution; on the other, the upward revisions imply that the BOJ anticipates more intense inflationary pressures. News about this “wait-and-see” stance has influenced market perception over the coming months.

The yen-Bitcoin correlation and its global implications

The yield on the 10-year Japanese government bond (JGB) rose 3 basis points to 1.12%, reflecting persistent fiscal concerns and market expectations of future rate increases. This rise in Japanese yields has global implications: it raises the costs of financing worldwide, including in the United States, creating headwinds for risk assets like stocks and Bitcoin.

The correlation between yen and BTC, at a maximum of 0.84, suggests that any fluctuation in Japanese monetary policy could quickly transmit to the cryptocurrency market. Bitcoin fell more than 4.5% to $88,000 last Tuesday before partially recovering, demonstrating the market’s sensitivity to news coming from Tokyo.

Perspective: next steps for yen and Bitcoin

Analysts suggest that the yen is likely to remain weak in the short term, given that the BOJ has maintained its course without surprises to the upside. For Bitcoin, this could be positive if yen weakness persists, but the high correlation between the two assets also amplifies systemic risk.

Next month’s news will be crucial. The persistence of core underlying inflation could justify a more aggressive normalization of monetary policy, which would alter the current dynamics. Traders should carefully monitor both the yen and Bitcoin movements, considering that the two assets have become interconnected indicators of the global market sentiment towards Japanese monetary policy.