Ex-BOJ Official Warns of Faster Rate Hikes as Yen Weakens Further

Rates Could Climb Above 2% This Year

A former Bank of Japan official is warning that the central bank may accelerate interest rate hikes this year, potentially pushing its benchmark rate above 2%. Tsutomu Watanabe, an economics professor at the University of Tokyo who left the BOJ in 1999, made the projection as the yen continues to weaken despite recent tightening.

Bond Yields Hit Multi-Decade Highs

Japan’s official interest rate currently sits at 1% following recent increases, while the 10-year government bond yield has climbed above 2.8%, its highest level in at least three decades. Even with rising yields, the yen has continued sliding, dropping 3% so far this year and depreciating 60% against the US dollar since early 2021.

Uncertain Impact on Bitcoin

Faster BOJ rate hikes could help stabilize or lift the yen, raising questions about the ripple effect on risk assets like bitcoin, currently trading around $63,052. One long-standing theory suggests that a stronger yen could trigger unwinding of trades funded by cheap yen borrowing, pressuring bonds, tech stocks and crypto. However, that theory has been complicated by a strong recent correlation between bitcoin and the yen, with both assets falling against the dollar together.

Fiscal Concerns Loom

Some economists caution that rapid rate hikes could further strain Japan’s already fragile fiscal position, adding another layer of uncertainty as the central bank weighs its next move.