BOJ Holds at 1% Amid Yen Weakness and Inflation Pressures Rise

The Bank of Japan (BOJ) maintained its policy rate at 1.0% on July 31, as expected, in an 8-1 vote with Hajime Takata dissenting for a 25-basis-point rise to 1.25%. Despite the hold, the yen continued to weaken, sliding past 160 against the dollar.

The markets interpreted the single dissent as dovish, which led traders to believe that the BOJ may not raise rates soon. This view was supported by MUFG's research team, which forecasts the BOJ moving faster than markets price, with hikes in September and again after.

JPMorgan's head of FX research, Junya Tanase, stated that the defence line markets had assumed around 162 had effectively disappeared, but Thursday's intervention moved the pair five yen in a session. The Finance Minister Satsuki Katayama reiterated that authorities stand ready to act at any moment, in coordination with the United States.

The BOJ held its policy rate at 1.0% as investors around the world borrow yen cheaply and put that money into assets they expect to earn more, including stocks, bonds, currencies, and crypto. The trade works as long as Japanese rates stay low and the yen stays weak, but a reversal would force investors to sell what is easiest to sell first, which means liquid assets like Bitcoin.

Bitcoin touched an intraday high near $65,340 before returning to $64,400, with support holding at $63,400, $63,600. The outlook depends on the currency, and the BOJ's decision not to defend it leaves leveraged portfolios vulnerable to a sharper correction later.