Bank of Japan Hikes Key Rate to 1.25% in Biggest Jump Since 1995

The Bank of Japan has raised its benchmark interest rate to 1.25%, its highest level since 1995, following a 7-2 vote.

This move is expected to strengthen the yen and potentially affect leveraged positions across global risk assets, including cryptocurrencies.

Bitcoin's reaction was mixed, initially climbing against the yen but not necessarily signaling a broader rally. The concern for Bitcoin stems from the yen carry trade, where investors borrow yen at near-zero cost and deploy proceeds into higher-yielding opportunities worldwide.

The rate increase could lead to a reduction in risk exposure as borrowers are forced to sell assets and repurchase yen to repay loans. However, this scenario is not automatic and depends on various factors, including whether the decision was already priced in and how aggressively the yen responds.