Bitcoin Tentative, Asian Stocks Slide on BOJ Rate Hike Talks

BY Coindesk | ECONOMIC | 03/11/24 03:07 AM EDT By Omkar Godbole
  • Bitcoin traded slightly higher in Asia as Japan?s Nikkei index fell over 2%.
  • Bank of Japan, the last bastion of low-interest rates, could soon fall, Reuters said.

Bitcoin {{BTC}} traded slightly higher early Monday as talks that the Bank of Japan (BOJ), the last bastion of ultra-low interest rates, could fall soon rocked the Asian equity markets.

At the time of writing, the leading cryptocurrency by market value was changing hands at $69,000, up over 1% on a 24-hour basis. Prices briefly hit a low of $67,120 earlier in the day, having set a new record high above $70,000 on Friday. The CoinDesk 20 Index, a broader market gauge, was down 2.17%.

Asian equity indices slipped, with Japan?s Nikkei and Australia?s ASX falling 2% after a Reuters report said the Bank of Japan could lift the benchmark interest rate above zero this month. Bets that BOJ will plug the plug at its March 18-19 meeting have gathered traction, according to Bloomberg.

That would be the BOJ?s first rate hike since 2007. Reuters report added that the bank could ditch the bond-buying program after ending the negative interest rate policy.

Some analysts have long warned that BOJ is a major source of uncertainty for both traditional and crypto markets.

Since 2016, the BOJ?s NIRP and bond-buying program have been a major source of downward pressure for global government bond yields, helping support asset prices. The central bank maintained a pro-liquidity stance over the past two years even as its peers, including the U.S. Federal Reserve, raised rates rapidly to combat inflation.

However, the BOJ is now under pressure to raise rates, thanks to domestic inflation running well above its target and the rising probability of wage hikes. The Japanese yen is rising, boasting a 2% weekly gain against the U.S. dollar at press time.

The potential unwinding of BOJ?s pro-liquidity stance and resulting yen strength will likely jeopardize the yen carry trade, which may have greased the ongoing year-long risk-on rally in financial markets, including technology stocks and cryptocurrencies. A carry trade involves borrowing low-interest fiat like the yen and investing in high-yielding.

Crypto (CRCW) bulls might want to monitor a potential BOJ-led decline in stocks, particularly shares in technology firms. That?s because, as in previous bull runs, bitcoin?s latest move to record highs has coincided with the outperformance of rate-sensitive technology stocks relative to the broader U.S. equity market. The ratio between Wall Street?s tech-heavy index, Nasdaq (NDX), and the S&P 500 (SPX) rose to record highs in January.

That said, the consensus in the crypto market is that any dip in bitcoin is likely to be short-lived, and prices could rally into six figures in the coming months.

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

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