In brief
- The Federal Reserve is expected to hold interest rates steady tomorrow, but investors are eager for signs of a rate cut ahead in September.
- Meanwhile, the Bank of Japan could raise interest rates for the second time in 17 years on Wednesday.
- The Japanese yen has strengthened as investors cover short positions, an analyst said.
As the Federal Reserve and Bank of Japan (BOJ) weigh key monetary policy, Bitcoin and other crypto investors are eager to learn how the central banks’ respective moves could influence markets Wednesday.
The BOJ will outline plans for a rate hike’s timing that could strengthen the Japanese yen’s value, in combination with details of a decrease in the purchasing of Japanese bonds. The decision comes after the central bank raised interest rates in March for the first time in 17 years.
Whether or not the BOJ raises interest rates again is currently a coin flip, with the market pricing in a 50% chance, per Reuters. While the currency's value has rallied sharply against the U.S. dollar over the past two weeks, it's still slid 8% over the past year.
Anticipation toward a BOJ rate hike has caused the yen’s value to rise as traders betting against the currency’s value have moved to cover trades with the sale of other assets, Joe Tuckey, Head of FX Analysis at Argentex Group, told Decrypt in a written statement.
“Markets have developed a hawkish expectation for the upcoming BOJ meeting,” he wrote. “However, there is a risk that the BOJ may not raise rates at tonight’s meeting. Instead, the BOJ could opt to reduce their bond purchase program.”
The economist Alex Kruger wrote on Twitter (aka X) that the BOJ’s decision could lead to further selling in “USD assets” as well before the U.S. central bank’s decision Wednesday. Meanwhile, a risk-off attitude in Japan has created headwinds for crypto, according to Chris Burniske, a partner at the venture capital firm Placeholder.
“[The] market [is] making a fool of everyone, myself included,” he wrote, adding that “risk is nuking in Japan, [while] bleeding into crypto.”
In May, BitMEX co-founder Arthur Hayes wrote that a BOJ rate hike would cause a meltdown for the central bank as existing Japanese bonds “crater” in value. From his perspective, the central bank would be forced instead to print the yen while swapping it for the U.S. dollar.
“When something is done about the weak yen, I will mathematically guesstimate how flows into the Bitcoin complex will ratchet the price to $1 million and possibly beyond,” he wrote.
Meanwhile, the Fed is expected to hold its benchmark interest rate steady Wednesday. Still, investors will be parsing a follow-up speech from Fed Chair Jerome Powell for clues.
Investors are currently penciling in a 91% chance that the Fed will cut interest rates in September, reducing borrowing costs for investors in the process. A weakening of the dollar that’s likely to follow would be supportive of Bitcoin’s price, Grayscale’s Head of Research Zach Pandl told Decrypt in a written statement earlier this month.
“As in 2020, lower interest rates should tend to weaken the value of the dollar and support the price of Bitcoin,” he wrote, adding that, “Grayscale Research continues to think that Bitcoin's price can retest its highs later this year.”
Edited by Andrew Hayward