BOJ Decision Could Spark Carry Trade Reversal, Impacting Bitcoin

The Bank of Japan (BOJ) is set to meet on July 30-31 to decide on its monetary policy, which could impact Bitcoin's price. The market expects rates to remain at 1%, but there is a possibility that the BOJ might raise rates faster than expected.

A more restrictive policy path would strengthen the yen and make borrowing in Japan less attractive, leading to a reduction in carry trades. This, in turn, could put pressure on Bitcoin alongside equities and other liquid risk assets.

The BOJ's guidance has already moved the yen, with the currency strengthening after a report that officials were open to raising rates faster than expected. The market is pricing in another hike in December, but a Reuters poll found that 86% of economists expect the rate to reach 1.25% by the end of 2026.

The Federal Reserve's decision on July 28-29 will set the backdrop for the BOJ's decision. A US hike would widen the rate gap and cushion the yen against hawkish Japanese guidance two days later, while a hold accompanied by softer language would leave the yen more exposed to whatever the BOJ signals.