Bank of Japan Maintains Interest Rate at 0.75% as Expected; Middle East Conflict Pushes Oil Prices Higher, Becoming New Variable for Rate Hikes

The Bank of Japan (BOJ) announced its monetary policy decision on the 19th with an 8-1 vote, maintaining the policy rate at 0.75%, in line with market expectations. However, the statement explicitly pointed out that if the economic outlook unfolds as expected, they will continue to raise interest rates, and the rising oil prices triggered by Middle Eastern tensions have been identified as a new variable in inflation pathways.
(Background: The Federal Reserve’s FOMC hawkish retreat “Bitcoin crashes to $70,500,” with 135,000 traders liquidated, totaling $452 million)
(Additional context: The Fed has held rates steady twice in a row at 3.5-3.75%! Dot plot revises 2026 inflation and GDP forecasts, with year-end rate estimates at 3.4%)

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• Highlight three key details to watch
• Yen arbitrage trading: an invisible bomb in the crypto market
• Where is the trigger for the next rate hike?

The BOJ’s March meeting results were as expected: no change. The 8-1 voting result, with the sole dissenting vote, did not alter the overall picture. The rate remains at 0.75%, temporarily easing pressure on yen arbitrage trading, but the language in the official statement indicates that the path to rate hikes is never closed.

Highlight three key details to watch

First, oil prices and Middle Eastern risks are explicitly mentioned for the first time. The statement notes, “Tensions in the Middle East have intensified, leading to increased volatility in global financial and capital markets, with crude oil prices rising significantly. Future developments are worth monitoring,” directly linking to inflation risk factors.

Second, real interest rates remain “significantly low.” Japan’s inflation has been persistently above target, yet the nominal rate is only 0.75%, meaning real interest rates are still negative. This indicates that monetary policy remains objectively accommodative, with substantial room for normalization.

Third, the conditions for rate hikes have been clearly articulated: “If the outlook presented in the January projections materializes, we will continue to raise the policy rate.” This statement effectively spells out the trigger conditions for future hikes in black and white, not just vague commitments.

Yen arbitrage trading: an invisible bomb in the crypto market

For the market, every BOJ decision triggers a specific mechanism: yen arbitrage trading.

The logic is simple: Japan has maintained ultra-low interest rates for a long time. Investors borrow low-cost yen, convert to USD or other currencies, and invest in high-risk assets like Bitcoin or tech stocks to earn yield spreads.

If the BOJ raises rates, this chain reverses: the yen appreciates, borrowing costs rise, arbitrage opportunities shrink, and funds are forced to exit risk assets, leading to a wave of unwinding. The lesson from two years ago is still fresh. After the BOJ raised rates in August 2024, Bitcoin plunged over 10% within days, closely correlated with the yen’s appreciation.

Where is the trigger for the next rate hike?

According to the BOJ’s statement logic, the following three conditions, if all met, could accelerate the timing of a rate hike:

1. Sustained benign wage-inflation cycle: The statement mentions “a gradually strengthening virtuous cycle of income and expenditure,” which is a structural signal BOJ has long awaited. If spring wage negotiations again exceed expectations, it could serve as a direct catalyst.

2. Oil prices remaining high: If Middle Eastern tensions persist and oil prices stay elevated, input-driven inflation will continue to rise, making it harder for the BOJ to remain on hold.

3. Manageable US tariff impacts: The statement also notes that manufacturing is “affected by declining tariffs.” If US-Japan trade tensions escalate, the BOJ might delay action due to concerns over export impacts.

Currently, the market widely expects the BOJ to restart rate hikes as early as May or July. During this period, the market faces a “temporary safe zone but warning signals remain.”