Bitcoin and the yen remain stable as Japan's inflation slows and the Bank of Japan maintains its current interest rates

Bitcoin and Japanese Yen Remain Stable Amid Japan’s Inflation Slowdown

Bitcoin (BTC) and the Japanese yen, which have shown an unusually close relationship in recent times, maintained steady trading on Friday. This followed news that Japan experienced its first decrease in inflation in four months, while the country’s central bank opted to keep interest rates unchanged.

According to the Ministry of Internal Affairs and Communications, Japan’s main consumer price index (CPI)—a measure of everyday living costs—rose by 2.1% year-over-year in December. This marks a significant drop from November’s 2.9% increase. Meanwhile, core inflation, which excludes volatile fresh food prices, eased to 2.4% from the previous month’s 3%.

Despite these declines, underlying inflation pressures persisted. The core-core inflation rate, which removes both fresh food and energy costs, dipped only slightly to 2.9% in December from 3% in November. Analysts at ING noted that, aside from temporary changes linked to energy subsidies, fundamental price pressures remain strong.

They further commented that while persistent core-core inflation could pave the way for further policy adjustments, the recent slowdown in headline and core inflation may prompt policymakers to adopt a cautious, wait-and-see approach in the near future.

Later in the day, the Bank of Japan (BOJ) announced it would keep its key interest rate at 0.75%, with the decision receiving broad support among policymakers. The central bank also raised its growth and inflation outlooks for fiscal years 2025 and 2026, citing ongoing government stimulus as a supporting factor.

Bitcoin’s price remained largely unchanged, hovering close to $90,000. The yen weakened slightly, dropping just over 0.20% to 158.70 against the U.S. dollar. Some market strategists predict the yen will stay soft in the short term—a trend that could negatively impact bitcoin, given the strong recent correlation between the two. As of now, the 90-day correlation coefficient stands at 0.84.

The yield on 10-year Japanese government bonds (JGBs) climbed by 3 basis points to 1.12%. This increase likely reflects ongoing fiscal worries and expectations that the BOJ may continue raising rates in response to persistent inflation and improved economic forecasts. The benchmark yield is seen as an indicator of market sentiment regarding interest rates, prices, and economic growth.

Earlier this week, yields surged to their highest levels in decades amid concerns that tax cuts proposed by political parties ahead of the upcoming February election could worsen Japan’s fiscal outlook.

This spike in Japanese bond yields has led to higher borrowing costs globally, including in the United States, creating challenges for riskier assets such as equities and bitcoin. On Tuesday, bitcoin dropped more than 4.5% to $88,000 but has since rebounded slightly, trading near $90,000 with little change over the past day, according to CoinDesk data.