Bank of Japan Governor Kazuo Ueda signaled a more hawkish policy stance ahead of the central bank’s June meeting, raising expectations that Japan could lift interest rates to their highest level since 1995.

Ueda warned that inflation risks have increased as energy prices rise because of Middle East tensions, suggesting the BOJ may need to act sooner to prevent price pressures from becoming entrenched.

Markets are now pricing in a high probability of a 25 basis point hike at the BOJ’s June 15 to 16 policy meeting. That would lift Japan’s short term policy rate from 0.75% to 1%, a modest move by global standards but a major step for an economy that spent decades near zero rates.

The hawkish shift follows an unusually divided April meeting. The BOJ voted 6 to 3 to hold rates steady, but three board members called for an immediate hike to 1%. That dissent showed rising concern inside the central bank about inflation moving above target.

The inflation backdrop has changed sharply. The BOJ raised its core inflation forecast for fiscal 2026 to 2.8%, well above its 2% target. Higher energy costs have become a central concern because Japan depends heavily on imported fuel, leaving households and companies exposed when geopolitical shocks push prices higher.

The yen strengthened after Ueda’s remarks, with the dollar falling about 0.3% to 159.40 yen. The currency remains historically weak, but even a modest rebound matters because of the yen carry trade.

For years, investors borrowed cheaply in yen and used that funding to buy higher yielding assets elsewhere, including US equities, emerging market debt, and crypto. When Japanese rates rise and the yen strengthens, that trade becomes more expensive and less attractive.

That is why the BOJ matters for Bitcoin. A stronger yen can force leveraged investors to reduce risk exposure, creating pressure across global markets. In August 2024, a yen carry trade unwind helped trigger sharp losses across equities and crypto, showing how Japanese monetary policy can spill into digital assets.

The immediate risk is not simply the rate hike itself. Markets already expect one. The larger question is what Ueda signals next. If the BOJ frames the June move as the start of a steady tightening cycle, investors may begin pricing in a deeper unwind of cheap yen funding.

That would matter for crypto because Bitcoin often trades like a liquidity sensitive asset during global macro shocks. When funding conditions tighten, leveraged positions become more vulnerable, and traders tend to sell risk assets first.

The yen at 159.40 still suggests the carry trade has not fully unwound. But a hike to 1% would confirm that Japan is no longer the last major source of ultra cheap developed market funding.

For investors, the BOJ’s June meeting is now a macro risk event. A simple 25 basis point hike may already be priced in. A more aggressive message on future hikes could be the real shock.