Bank of Japan hikes rates to 1.25%, but Governor keeps markets calm as carry trade holds steady

The Bank of Japan (BoJ) raised its key interest rate to 1.25% on September 18, 2026, marking a 31-year high. However, Governor Kazuo Ueda's cautious tone appears to have reassured markets. As a result, the yen is dipping, stocks are climbing, and the carry trade remains intact—for now. The article Bank of Japan hikes rates to 1.25%, but Governor keeps markets calm as carry trade holds steady first appeared on Cryptoast.

The Bank of Japan (BoJ) reached a historic milestone on September 18, 2026, by raising its key interest rate to 1.25%, its highest level in 31 years. The decision, passed by a seven-to-two vote within the policy board, stems from the need to curb persistent inflation fueled by the yen's prolonged weakness and rising commodity prices. Despite international pressure on Japan to accelerate its monetary tightening, this 25-basis-point hike was widely anticipated by traders, preventing any major market shocks.

Governor Kazuo Ueda played a pivotal role in maintaining stability by adopting a measured tone during his press conference. By favoring preventive, gradual adjustments over drastic measures, he successfully eased concerns regarding overly aggressive monetary tightening. This rhetoric, viewed as an attempt to pace the transition, immediately triggered a positive reaction in stock indices; for instance, the Nikkei 225 rose by 1.38%, while the yen depreciated slightly, fostering a favorable environment for risk assets.

For the cryptocurrency sector, this development offers a breath of fresh air. Bitcoin, trading at around 78,000 dollars, is showing an upward trend, reflecting overall market resilience despite a global monetary tightening cycle synchronized with recent rate hikes by the U.S. Federal Reserve and the European Central Bank. This stability is particularly notable as it wards off, at least for now, the catastrophic scenario of a massive "yen carry trade" unwinding—a financial strategy that leverages interest rate differentials to invest in volatile assets.

However, the stakes remain high for the coming months. While the threat of forced liquidation of leveraged positions seems to have receded for the time being, observers are already looking ahead to the year-end milestones. With forecasts suggesting a potential rate climb toward 1.75% by 2027, the BoJ will need to navigate carefully to avoid destabilizing global liquidity flows. For now, the market appears to be taking a wait-and-see approach, welcoming the Japanese institution's clarity and caution in the face of current macroeconomic challenges.