Bitcoin Gains 2%, Stocks Fall as Bank of Japan Allows Benchmark Bond Yields to Rise

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Bitcoin (BTC) traded higher early Tuesday, defying the Bank of Japan (BOJ) inspired stock market slide.

The BOJ unexpectedly lifted the cap on the Japanese 10-year government bond yield to 0.5% from 0.25% previously, ending the long period of near-zero interest rates. The 10-year yield serves as a reference for the other borrowing rates.

The central bank said the policy change would ease the transmission of monetary easing effects, indicating it did not want markets to see it as a sign that the BOJ is finally moving away from liquidity easing.

However, Risk Assets did just that. S&P 500 futures fell almost 1% and the Nikkei, Japan’s benchmark stock index, fell nearly 3%. The Japanese yen jumped more than 2% against the US dollar. The yield on 10-year Japanese government bonds rose from 0.22% to 0.43%, while the 10-year Treasury yield jumped nearly 10 basis points to 3.69%.

Bitcoin, however, remained resilient, rising 2% to $16,800. Ether (ETH), the second-largest cryptocurrency, rose 3.2% to $1,206, according to data from CoinDesk.

The reaction of stocks and bond yields is understandable, given that the BOJ’s policy of capping the 10-year yield near zero with unlimited purchases of open-ended bonds, also known as yield curve control ( YCC), was a major source of decline. pressure on borrowing costs in Asia and globally and supported risk taking. The yen was supposed to be used to finance risky activities elsewhere.

The central bank introduced yield curve control six years ago and has remained committed to it this year even as the Federal Reserve and other major central banks raised rates.

“BOJ funding was the cheapest source of liquidity,” said QCP Capital, a Singapore-based crypto trading firm. “While the policy change is not a removal of YCC, the signal will lead people to extrapolate that BOJ Governor Haruhiko Kuroda will seek to leave YCC by the end of his term in April.”

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QCP added that the surprise decision to raise the 10-year yield cap to 0.5% during low volume days before Christmas increased the risk of a VaR shock, but it is unlikely to have a direct consequence for crypto-currencies.

“We doubt crypto assets will be directly affected by the decision,” QCP said, adding that a big crash in stocks could bring more pain to bitcoin.

Matthew Dibb, CIO at Astronaut Capital, expressed a similar opinion. “The initial market reaction to the BOJ was clearly out of risk. It’s hard to say if this will hold, but cryptos have rallied slightly. At this point, we believe any strength or decorrelation is simply a If we see stocks go down, so will crypto,” Dibb told CoinDesk

End Twitter fears the BOJ’s decision has paved the way for a global meltdown.

“The Bank of Japan literally broke the world tonight,” tweeted Christian H. Cooper, ETF portfolio manager at Subversive. “A minor policy change has huge implications that will take weeks to materialize.”

“The BOJ was the last to resist low yields and now that’s changing. Rate spikes, stocks down (for weeks), + Chaos,” Cooper added.

Kyle Bass, chief investment officer at Hayman Capital Management, tweeted that the BOJ would “deeply regret” the decision and that the emerging world is at risk due to the policy change.

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