Japan Set for First 1.25% Rate Since 1995; Bitcoin Unmoved

The Bank of Japan (BOJ) will meet Thursday and Friday, and the consensus is for a rate hike to 1.25%, the highest since April 1995. Japanese short-term bond yields have already risen steeply in anticipation.

Japanese sovereign bonds, the yen, and equities in Tokyo are undergoing substantial repricing. Bitcoin (BTC) has not joined the move, and this divergence will be tested this week.

Japan’s Short End Went Vertical Ahead of the Rate Hike

On Friday, Japan's six-month bill yield ended the session around 1.335%. Just two years earlier, that maturity was yielding negative territory.

JAPAN'S SHORT-TERM YIELD IS GOING VERTICAL.

Today, Japan's 3-month bond yield hit 1.25%, its highest level in 31.5 years.

Japan's 6-month yield hit 1.34%, its highest level in 31 years.

What's really surprising here is that both these yields were negative just 2 years ago, and… pic.twitter.com/RPsFJYUALr

— The Macro Paper (@macropaperr) September 14, 2026

The 2026 rally has featured hardly any retreat. This indicates that market participants are continuously updating their expectations for the ultimate rate level, outpacing the central bank's actual moves.

According to a Reuters survey released on Friday, 66 out of 68 economists predicted a rate increase this week. Nearly 90% of them forecast a rate of 1.50% by the end of March. Additional reports from last week indicated an accelerated tightening path, with another hike feasible later in 2026.

This Is Fiscal, Not Inflation

The longer end of the curve has seen comparable moves. The 10-year yield hit 3% this month, its first such level since 1996, while the two-year yield is around 1.85%.

Inflation is not the driver. Consumer prices in July increased 1.9% year-on-year, and the core figure was 1.8%, marking the seventh consecutive month under the 2% objective.

Supply factors are the cause. Government ministries sought a record ¥143 trillion for the upcoming fiscal year, and the Finance Ministry raised its assumed long-term bond yield to 3.8%. Investors are thus requiring higher yields to hold Japanese government bonds.

Bitcoin Is Not Answering

The yen carry trade is unwinding based on tangible data. The Japanese currency has risen about 6% from its July trough following a historic ¥15.4 trillion joint intervention by Japan and the US, the first such coordinated effort since 2011.

In the week ending September 8, speculators shifted to a net long yen stance, a change of 103,000 contracts. Between February and June, Japanese investors reduced their holdings of US Treasuries by $122.6 billion.

The Nikkei 225 has dropped 8.4% over the past month and is now 13% off its June peak. Bitcoin was trading around $77,721, gaining 0.8% in the last day, and had already withstood a comparable yen move the previous week.

In August 2024, a BOJ increase to only 0.25% triggered a 12.4% single-session plunge in the Nikkei and pushed Bitcoin from roughly $70,000 down to $49,000. The expected hike on Friday would bring the policy rate to five times that level.

Friday will be the decisive day. A hawkish indication regarding the speed of additional increases, rather than the rate decision itself, is what could end the current divergence.