Bank of Japan raises rates to 1%, yen hits 23-month low as debt pressures mount

The Bank of Japan just raised its benchmark interest rate to 1% for the first time since September 1995. The yen responded by doing the exact opposite of what a rate hike is supposed to accomplish: it fell off a cliff.

By June 18, the Japanese yen had weakened to 160.80 against the US dollar, marking a 23-month low that erased gains from earlier government intervention efforts. The BOJ’s June 16 decision to hike by 25 basis points, moving the rate from 0.75% to 1%, passed with a 7-1 vote. The lone dissenter was board member Asada Toichiro.

A rate hike that couldn’t save the currency

The previous rate of 0.75% had been in place since December 2025. The central bank is also holding steady on its bond tapering plans, targeting monthly Japanese Government Bond purchases of 2 trillion yen starting from April 2027.

Rising energy prices, partly driven by geopolitical tensions involving Iran, have forced the BOJ’s hand on inflation. The fact that the currency still plummeted despite markets broadly expecting this hike suggests traders see structural weaknesses that a quarter-point increase simply cannot patch.

Japanese equities love a weak yen

While the yen was busy hitting multi-year lows, Japanese stocks were throwing a party. The Nikkei 225 index surged past 71,000 for the first time, setting a new record high.

A weaker yen makes Japanese exports cheaper on the global market, which directly benefits the country’s major manufacturers and exporters. Toyota, Sony, and their peers see their overseas earnings inflate when converted back to yen.

Japanese authorities have previously intervened directly in currency markets when the yen weakened past critical thresholds. The drop to 160.80 puts the currency firmly in territory where past interventions have been triggered.

What this means for crypto and the carry trade

Bitcoin saw an uptick following the BOJ’s announcement. The yen carry trade, where investors borrow in low-yielding yen to invest in higher-yielding assets elsewhere, has been a persistent force in global markets for years. Even at 1%, Japanese rates remain far below those in the US and other major economies, meaning the carry trade remains attractive.

The risk scenario that crypto investors should be watching is a disorderly yen decline. If the currency drops fast enough to trigger a rapid unwinding of carry trades, the resulting deleveraging could pull liquidity out of risk assets across the board, crypto included.

Traders positioned in Bitcoin and other digital assets should pay close attention to the 160-165 range on USD/JPY. Japan’s debt-to-GDP ratio remains the highest among major economies, and every rate increase adds to the government’s interest expense.

Disclosure: This article was edited by Editorial Team. For more information on how we create and review content, see our Editorial Policy.