Bitcoin shrugs off Fed and BOJ rate hikes to end week higher

Bitcoin has just enjoyed a remarkably strong week. The largest cryptocurrency climbed almost 5%, shrugging off a run of developments that would normally weigh on prices. A key crypto bill stalled in the US Senate, and both the US Federal Reserve and the Bank of Japan raised their policy rates.

Technically, the market is now focused on the $85.000 threshold. A convincing break above that level could open the way to the next major hurdle: $100.000. That psychologically important level has long been regarded as one of the key price targets for retail and institutional investors alike.

BOJ

The Bank of Japan raised its policy rate by 25 basis points earlier this week. The decision lifts the Japanese rate from 1.00% to 1.25%, the highest since 1995 and the highest level in more than three decades. Curiously, Bitcoin barely reacted to the news.

According to the central bank, the move is necessary to prevent inflation from running above its 2% target over the longer term. Although higher rates are generally seen as negative for risk assets such as equities and cryptocurrencies, financial markets and Bitcoin alike responded very calmly to the decision.

Bitcoin rose to around $77.400 after the announcement, extending its recovery from an earlier intraday low of around $76.200. The reaction on currency markets was also muted. The Japanese yen actually weakened. That suggests investors had largely expected the BOJ’s move and had already priced it in.

Federal Reserve

The US Federal Reserve also raised its policy rate by 25 basis points earlier this week. Because both the Fed’s move and the BOJ’s were widely anticipated, the market’s attention quickly shifted to the economic outlook for the coming months. Investors appear to assume that the global economy will remain resilient and that liquidity will not suddenly drain from the markets.

Another important factor is the still substantial interest rate differential between Japan and the United States. Despite the latest increase, the Japanese rate remains relatively low compared with those of other major economies. That keeps the so-called carry trade attractive. In this strategy, investors borrow in a low-yielding currency such as the yen and then invest in assets that can deliver a higher return.

The BOJ’s rate rise erodes that advantage somewhat, but it does not change the fundamental picture. As long as the rate gap with the United States remains wide, the incentive to invest capital outside Japan will remain largely intact. That helps to support risk assets such as equities and cryptocurrencies.