Cryptocurrency markets showed signs of weakening on Friday as macroeconomic indicators from Japan, a leading global economy, intensified market uncertainty stemming from the ongoing Iran conflict.
Bitcoin (BTC) remained close to $77,800 throughout early Asian trading hours according to CoinDesk data, struggling to surpass Thursday’s peak of $78,700. This follows a broader upward trend initiated in late March around the $65,000 mark, which appears to have plateaued since Wednesday.
Ether (ETH), the second-largest cryptocurrency by market capitalization, was priced near $2,300, dropping 0.8% since midnight UTC, thus underperforming Bitcoin’s slight 0.6% decline.
This cautious sentiment in crypto markets coincided with recent inflation figures from Japan. The nation’s Corporate Service Price Index (CSPI) increased by 3.1% year-on-year in March, surpassing the anticipated 3.0%, highlighting enduring price pressures within the services sector.
Additional data revealed that core inflation rose to 1.8% in March from 1.6% in February, marking its first acceleration in five months. Headline inflation edged up to 1.5% from 1.3%, although it remained below the Bank of Japan’s 2% target for a second month running. Meanwhile, core-core inflation, which excludes both fresh food and energy prices, dipped to 2.4%, its lowest point since October 2024.
The increase in headline inflation coincides with rising energy costs linked to geopolitical tensions, notably disruptions to oil shipments via the Strait of Hormuz due to the ongoing Iran conflict.
As a major crude importer, Japan is particularly vulnerable to such price fluctuations. WTI crude futures have surged over 40% to $96 since February’s onset of the Iran war.
Attention now turns to the Bank of Japan’s forthcoming policy meeting. Analysts at InvestingLive predict an imminent shift in tone. “The Bank of Japan looks set to hold fire next week but deliver a pointed warning that rates are heading higher, with June firmly in play as war-driven inflation risks build,” they said.
Indications of tighter monetary policies and potential rate hikes could strengthen the Japanese yen (JPY) and impact global market sentiment. This is especially plausible now, given speculative positioning in the yen is currently bearish according to recent CFTC data. Consequently, there’s significant potential for a sharp bullish response if the Bank of Japan adopts a hawkish stance.
However, a stronger yen might not be beneficial overall. Traditionally, the yen has financed risk asset purchases globally. A sudden appreciation in its value could trigger an unwinding of these trades, leading to heightened risk aversion.
Regarding the Iran conflict, additional naval mines have been deployed by Iran in the Strait of Hormuz this week, as reported by Axios. Shipping traffic through the Hormuz, which accounts for 20% of global seaborne oil, has sharply declined since the conflict intensified.
The Pentagon advised lawmakers that it would take at least six months to clear mines in the Strait once hostilities cease. Additionally, it warned that U.S. inflation could remain elevated this year, complicating potential rate cuts by the Fed.