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The Bank of Japan just hiked its benchmark interest rate to 1%, the highest level since September 1995. And according to one of the most closely watched FX strategists in the world, it might not be enough.
Jane Foley, head of FX strategy at Rabobank, put it plainly: the market isn’t just looking for rate hikes. It’s looking for conviction.
“What the market wants to see is evidence that the Bank of Japan is not behind the curve on inflation.”
The BOJ’s two-day meeting, which concluded on June 16, produced a 7-1 vote to raise the short-term policy rate from 0.75% to 1%. It’s the first increase since December 2025, and it moves Japan further along a normalization path that would have seemed unthinkable just a few years ago.
Why a rate hike can feel like not enough
Foley’s core argument is straightforward: traders don’t just want rate hikes on schedule. They want signals that the BOJ is getting ahead of inflation, not chasing it. A predictable quarter-point move, telegraphed weeks in advance, reads more like box-checking than aggressive policy management.
Adding a layer of uncertainty, BOJ Governor Kazuo Ueda was absent from the June meeting due to medical treatment. His absence didn’t derail the decision, but it did remove the most important voice from the room at a moment when forward guidance matters as much as the rate itself.
The yen carry trade and what it means for risk assets
The carry trade works like this. Investors borrow yen at Japan’s rock-bottom interest rates, convert it into higher-yielding currencies, and deploy that capital into risk assets, including equities, commodities, and yes, crypto. When Japanese rates stay low, this trade pumps liquidity into global markets. When rates rise, the math changes. Borrowing costs go up, the yen strengthens, and traders unwind positions to pay back yen-denominated loans.
In previous cycles, BOJ tightening has coincided with sharp selloffs in Bitcoin and broader risk markets as leveraged capital gets pulled back to cover obligations. A policy rate of 1% is still low by global standards, but each incremental hike from the BOJ narrows the interest rate differential that makes the carry trade profitable, and that narrowing has historically correlated with periods of reduced appetite for speculative assets.
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