The Bank of Japan (BOJ) meets Thursday and Friday and is widely expected to raise its policy rate to 1.25%, the highest level since April 1995. Japan’s short-term bond yields have already gone vertical ahead of the decision.
Japanese government bonds, the yen, and Tokyo stocks are all repricing hard. Bitcoin (BTC) is not following, and that divergence faces its first real test this week.
Japan’s Short End Went Vertical Ahead of the Rate Hike
Japan’s six-month bill yield closed near 1.335% on Friday. Two years ago, the same maturity traded below zero.
The 2026 climb shows almost no pullback. That pattern suggests traders keep revising their view of where rates end up, faster than the central bank delivers.
A Reuters poll published Friday found 66 of 68 economists expect a hike this week. Almost 90% see 1.50% by the end of March. Reports last week also signaled a faster tightening pace, with another move possible in 2026.
This Is Fiscal, Not Inflation
The long end has moved just as far. The 10-year yield reached 3% this month for the first time since 1996, and the two-year sits near 1.85%.
Inflation does not explain it. July consumer prices rose 1.9% annually, with core at 1.8%, a seventh straight month below the 2% target.
Supply does. Ministries requested a record ¥143 trillion for the next fiscal year, and the Finance Ministry lifted its own assumed long-term bond rate to 3.8%. Investors are demanding more to hold Japanese government debt.
Bitcoin Is Not Answering
The yen carry trade is unwinding on measurable evidence. The yen has gained roughly 6% from its July low after a record ¥15.4 trillion intervention by Japan and the United States, the first joint action since 2011.
Speculators flipped to a net long yen position in the week to September 8, a swing of 103,000 contracts. Japanese holdings of US Treasuries fell $122.6 billion between February and June.
The Nikkei 225 has lost 8.4% in a month and trades 13% below its June record. Bitcoin traded near $77,721, up 0.8% in 24 hours, and already absorbed a similar yen shock last week.
In August 2024, a BOJ hike to just 0.25% sent the Nikkei down 12.4% in one session and Bitcoin from about $70,000 to $49,000. Friday’s move would set policy five times higher.
Friday is the test. A hawkish signal on the pace of further hikes, rather than the hike itself, is what would break the divergence.