Bitcoin Holds Steady Above $34K After Hawkish Bank of Japan Decision

The BOJ's yield curve control program has been a major source of liquidity for financial markets since 2016.

AccessTimeIconOct 31, 2023 at 5:55 a.m. UTC
Updated Oct 31, 2023 at 2:55 p.m. UTC

Bitcoin (BTC) continues to trade above $34,000 after the Bank of Japan (BOJ) softened its grip on the “yield curve control” (YCC) program, counteracting the Federal Reserve’s liquidity tightening.

At press time, the leading cryptocurrency by market value changed hands at $34,300, representing a 0.18% drop on a 24-hour basis, CoinDesk data show.

On Tuesday, the central bank kept the short-term policy rate steady at -0.1%, continuing its negative interest rate policy. However, the BOJ said it would consider the 1% upper bound for the 10-year government bond yield as a “reference” rather than a hard cap. This tweak will allow for more yield fluctuations and relieve the pressure on the BOJ to step in with liquidity-boosting bond purchases every time the 10-year yield tests the erstwhile 1% hard cap.

Bitcoin is known to track changes in global fiat liquidity, and the Japanese central bank’s YCC has been a significant source of liquidity since 2016.

The BOJ’s move is consistent with Monday’s Nikkei report, which said the bank will take a more flexible stance, allowing the benchmark yield to rise above 1%. The U.S. dollar-Japanese yen (USD/JPY) pair has bounced back to 150 from 149.20, a sign the overnight Nikkei report had traders expecting the BOJ to move the hard cap to 1.25% or 1.5%.

Per some observers, BOJ’s latest tweak represents a stealth move away from the dovish YCC program, which calls for caution on the part of traders of liquidity-sensitive risk assets, including cryptocurrencies.

“Key paragraph from the BOJ - 1% is now the “soft” upper limit (reference) and won’t be enforced as strictly. That, and the upward revision to inflation forecasts, means this is THE most hawkish BOJ has been in a while...just not as hawkish as the Nikkei leaks suggested,” rates strategist Rishi Mishra said on X.

The International Monetary Fund (IMF) has urged the BOJ to abandon YCC and prepare for eventual tightening or rate hikes.

Edited by Parikshit Mishra.


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Omkar Godbole

Omkar Godbole is a Co-Managing Editor on CoinDesk's Markets team.