Bitcoin rally is stalling as Japanese inflation adds to Iran war–driven market jitters

Crypto markets weaken amid rising Japan inflation, Iran war oil disruptions, and expectations of a hawkish Bank of Japan.

What to know:

• Bitcoin and ether slipped alongside broader crypto markets as traders reacted to rising geopolitical tensions from the Iran war and fresh inflation data from Japan.
• Japanese inflation ticked higher in March, stoking expectations that the Bank of Japan may soon signal rate hikes, which could strengthen the yen and unsettle global risk assets.
• The Iran conflict has disrupted oil flows through the Strait of Hormuz, raising energy costs and inflation risks worldwide and potentially complicating efforts by the Federal Reserve to cut interest rates.

Cryptocurrency markets remained on the back foot Friday as macroeconomic signals from Japan, one of the world’s largest economies, compounded uncertainty driven by the Iran war.

Bitcoin BTC$77,981.01 hovered near $77,800, having struggled to break above the Thursday high of $78,700 during the early Asian trading hours, according to CoinDesk data. The broader uptrend, which began in late March near the $65,000 mark, appears to have stalled since Wednesday.

Ether (ETH), the second-largest cryptocurrency by market capitalization, traded around $2,300, slipping 0.8% since midnight UTC and underperforming bitcoin’s relatively modest 0.6% decline.

The cautious tone in crypto markets coincided with fresh inflation data out of Japan. The country’s Corporate Service Price Index (CSPI) rose 3.1% year-on-year in March, exceeding forecasts of 3.0% and underscoring persistent price pressures in the services sector.

Additional government data showed core inflation rising to 1.8% in March from 1.6% in February, marking the first acceleration in five months. Headline inflation edged up to 1.5% from 1.3%, though it remained below the Bank of Japan’s 2% target for a second consecutive month. Meanwhile, core-core inflation, which excludes both fresh food and energy, eased to 2.4%, its lowest level since October 2024.

The uptick in headline inflation aligns with rising energy costs linked to geopolitical tensions, particularly disruptions to oil shipments through the Strait of Hormuz amid the ongoing Iran conflict.

apan, a major crude importer, remains especially vulnerable to such price shocks. WTI crude futures have risen over 40% to $96 since the onset of the Iran war in late February.

Market participants are now turning their attention to the Bank of Japan’s upcoming policy meeting. Analysts at InvestingLive suggest a shift in tone may be imminent.
"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," analysts said.

Hints of tighter monetary policy and potential rate hikes could lift the Japanese yen (JPY) and influence global market sentiment. It's especially plausible now, given that speculative positioning in the yen is currently bearish, according to the latest CFTC data. As a result, there is room for a sharp bullish reaction in the yen if the Bank of Japan turns hawkish.

As for the broader market impact, a stronger yen may not be favorable. Historically, the yen has been used to fund purchases of risk assets worldwide. A sudden appreciation in the currency could therefore trigger an unwinding of those trades, leading to increased risk aversion.

Speaking of the Iran war, Iran has deployed additional naval mines in the Strait of Hormuz this week, according to Axios. Shipping traffic through the Hormuz, which
accounts for 20% of the world’s seaborne oil, fallen sharply since the conflict intensified.

The Pentagon warned lawmakers that it would take at least six months to clear mines in the Strait, with the process only beginning after the war ends. It also cautioned that inflation in the U.S. could remain elevated this year, potentially making it harder for the Fed to cut rates.

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