Japan's core inflation surpassed the Bank of Japan's 2% target in September, ending nine months below that threshold. The increase strengthens the case for a December rate rise, when the Federal Reserve is also expected to raise rates. The BOJ is expected to leave rates unchanged next week. However, guidance about subsequent increases could influence Bitcoin, which is already declining.
Reuters reported that core CPI, which excludes fresh food, reached 2.1%, compared with 1.7% in August. A separate measure excluding both fresh food and fuel increased to 2.4% from 1.9%. CNBC reported that goods inflation accelerated to 2.8% from August's 2.6%, despite a 20.6% fall in rice prices. Services inflation increased to 1.5% from 1.2%. The BOJ will consider these readings while revising forecasts at the two-day policy meeting concluding on October 30.
The BOJ increased the policy rate to 1.25% in September, the highest level in 31 years. Many analysts surveyed by Reuters expect a December increase to 1.50%, followed by a peak near 1.75% or 2%. Capital Economics' Asia-Pacific head Marcel Thieliant expects unchanged rates at the next meeting but continued BOJ concern about upside inflation risks. Thieliant said scant evidence of an economic slowdown from previous tightening shifts the risks toward a policy-rate peak above Capital Economics' 2% forecast.
CME FedWatch data assigns an 80.5% probability to a higher Fed target range by December 9. The probability of a Fed increase on October 28 is 7.2%, compared with 55.4% a month earlier. The BOJ's December meeting takes place on December 17 and 18.
Both central banks' decisions could influence Bitcoin through yen carry trades. Rising Japanese rates may prompt investors who borrowed yen for riskier investments to unwind positions, potentially putting cryptocurrency markets under pressure. A Fed increase could support the dollar and partially counter that pressure. Similar increases by both central banks would leave the US-Japan interest-rate gap largely unchanged. That outcome could reduce the incentive to unwind carry trades.
Bitcoin fell from about $70,000 to $49,000 after the BOJ increased rates to 0.25% in July 2024. However, Bitcoin remained stable before September's increase while Japanese assets declined. Bitcoin now approaches December in a weaker position. BeInCrypto Markets recorded Bitcoin at $81,293 at publication, down 3.16% over the preceding 24 hours.
Bitcoin has declined 5.6% over the past month. Bitcoin reached a peak above $86,000 in early October. Recovery attempts since October 9 have failed to reach $84,000. Those price developments leave Bitcoin more vulnerable if the BOJ signals a stronger inclination to raise rates on October 30.
Japan's Inflation Surpasses BOJ Target, Potential Rate Hikes May Impact Bitcoin
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Summary
Japan's core inflation rose above the BOJ's 2% target in September, fueling speculation of a rate hike in December. While the BOJ may hold rates steady, it could hint at future increases, which may affect the spot bitcoin ETF. The Fed is also expected to raise rates, potentially impacting bitcoin ETF approval and crypto markets via yen carry trades. Bitcoin has dropped 5.6% in a month and fell 3.16% in the last 24 hours.
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