The inflation index in Japan is seen by the market as a key factor in the stabilization of bitcoin and the Japanese yen

This week, Japan’s inflation data has become the focus of attention in the cryptocurrency market. December consumer price indicators indicate significant changes in macroeconomic conditions that directly affect the movement of fixed assets, including bitcoin. According to CoinDesk, BTC recently traded near the $83.97K mark after falling 6.23% over the past day.

December Inflation Index Reveals Mixed Trends

The main consumer price index (CPI) showed its first decline in four months in December, falling to 2.1% year-on-year compared to 2.9% in November. This is a significant slowdown that would seem to contribute to the easing of monetary policy. However, a deeper analysis of the inflation index shows a more complex picture.

Excluding food prices, core inflation turned out to be more stable than the market expected. It fell to only 2.4% from 3% in the previous month — a less dramatic decline than the main index. ING analysts emphasized that core inflationary factors remain persistent, as after taking into account energy subsidies, price pressures have practically not changed (2.9% from 3%).

Bank of Japan: Sustainability Dividend

On Wednesday, the Bank of Japan decided to leave the benchmark interest rate unchanged at 0.75%, which was almost unanimous. However, this decision was accompanied by an increase in forecasts for both growth rates and inflation for 2025-2026. The Central Bank referred to support for expansionary fiscal policy programs when arguing its position.

This contrasting movement — holding bets while forecasts are rising — has created some tension in the market. The inflation index acted as an information signal that the demand for monetary assets will remain under pressure despite the decline in the overall CPI.

Japanese Yen and Bitcoin: Synchronization Continues

Contrary to expectations that the decline in inflation should support the Japanese currency, the yen actually weakened by 0.20%, reaching the level of 158.70 per US dollar. This easing was caused by rising yields on 10-year Japanese government bonds (JGB), which rose 3 basis points to 1.12%.

These bonds have become a barometer of fiscal worries in Japan. During the elections in February, political parties promise tax breaks, which could worsen the already critical budget situation. Liquidity rose to multi-year highs earlier in the week due to concerns about the long-term sustainability of public finances.

It is important to note that the correlation coefficient over the past 90 days between Bitcoin and the Japanese yen is 0.84 — the highest level on record. This means that these two assets move almost synchronously, and the weakening of the yen negatively affects the dynamics of Bitcoin.

Global Effects of Japanese Bond Growth

The rise in Japanese bond yields creates a global effect that is often underestimated. When borrowing from Japan becomes more expensive, it increases the cost of capital worldwide. This “spilling effect” aggravates the situation for risky assets, including stocks, crypto-assets, and other speculative instruments.

Bitcoin fell more than 4.5% to $88,000 on Tuesday before a partial recovery. At that time市場 was experiencing real stress due to fears about the global impact of Japanese monetary and fiscal policies. In this context, the Japanese Inflation Index is seen by the market as a signal of the further trajectory of the Bank of Japan.

Outlook: Sustainable Core Inflation and Its Significance

Core inflation, which excludes the least stable components (fresh produce and energy), remains a reason for caution for the Bank of Japan. This explains the paradox — despite the decline in the overall inflation index, the central bank is in no hurry to soften monetary conditions.

ING analysts noted that persistent core inflation could support further policy normalization in the coming quarters. At the same time, a downturn in headline and core inflation could push the BOJ to take a more hands-on approach in the coming months.

For the cryptocurrency market, this means that the Bank of Japan’s decisions may remain unpredictable. Japan’s inflation index and its interpretation by the BOJ management will continue to influence the bitcoin rate and correlate with the dynamics of the Japanese yen in the face of persisting global macroeconomic uncertainty.