With the Financial institution of Japan (BOJ) anticipated to hike charges subsequent week, some observers are apprehensive that the Japanese yen might surge, triggering an unwinding of “carry trades,” crushing bitcoin.
Their evaluation, nonetheless, overlooks precise positioning within the FX and bond markets, lacking the nuance and much more doubtless threat that Japanese yields, by anchoring and doubtlessly lifting international bond yields, might ultimately weigh over threat property moderately than the yen itself.
Widespread yen carry trades
Earlier than diving deeper, let’s break down the yen carry commerce and its affect on international markets over the previous few a long time.
The yen (JPY) carry commerce entails traders borrowing yen at low charges in Japan and investing in high-yielding property. For many years, Japan saved rates of interest pinned close to zero, prompting merchants to borrow in yen and put money into U.S. tech shares and U.S. Treasury notes.
As Charles Schwab famous, “Going long on tech and short on the yen were two very popular trades, because for many years, the yen had been the cheapest major funding currency and tech was consistently profitable.”
With the BOJ anticipated to boost charges, issues are rising that the yen will lose its cheap-funding standing, making carry trades much less enticing. Greater Japanese rates of interest and JGB yields, together with a strengthening yen, might set off carry commerce unwinds – Japanese capital repatriating from abroad property and sparking broad threat aversion, together with in BTC, as witnessed in August 2025.
Debunking the scare
This evaluation, nonetheless, lacks nuance on a number of ranges.
At the start, Japanese charges – even after the anticipated hike – would sit at simply 0.75%, versus 3.75% within the U.S. The yield differential would nonetheless stay huge sufficient to favor U.S. property and discourage mass unwinding of carry trades. In different phrases, BOJ will stay probably the most dovish main central financial institution.
Secondly, the approaching BOJ price hike is hardly sudden and is already priced in, as evidenced by Japanese authorities bond (JGB) yields hovering close to multi-decade highs. The benchmark 10-year JGB yield at present stands at 1.95%, which is greater than 100 foundation factors above the official Japanese benchmark rate of interest of 0.75% projected after the hike.
This disconnect between bond yields and coverage charges suggests market expectations for tighter financial circumstances are doubtless already priced in, decreasing the shock worth of the speed adjustment itself.
“Japan’s 1.7% JGB yield isn’t a surprise. It has been in forward markets for more than a year, and investors have already repositioned for BOJ normalization since 2023,” InvestingLive’s Chief Asia-Pacific Forex Analyst Eamonn Sheridan mentioned in a latest explainer.
Bullish yen positioning
Lastly, speculators’ web lengthy yen positions depart little room for panic shopping for post-rate hike—and even much less cause for carry commerce unwinds.
Knowledge tracked by Investing.com exhibits that speculators’ web positioning has been constantly bullish on the yen since February this 12 months.
This starkly contrasts with mid-2024, when speculators have been bearish on the yen. That doubtless triggered panic shopping for of the yen when the BOJ raised charges from 0.25% to 0.5% on July 31, 2024, resulting in the unwinding of carry trades and losses in shares and cryptocurrencies.
One other notable distinction again then was that the 10-year yield was on the verge of breaking above 1% for the primary time in a long time, which doubtless triggered a shock adjustment. That is now not the case, as yields have been above 1% and rising for months, as mentioned earlier.
The yen’s function as a risk-on/risk-off barometer has come underneath query not too long ago, with the Swiss franc rising as a rival providing comparatively decrease charges and lowered volatility.
To conclude, the anticipated BOJ price hike might deliver volatility, however it’s unlikely to be something like what was seen in August 2025. Traders have already positioned for tightening, as Schwab famous, and changes to BOJ tightening are prone to occur steadily and are already partially underway.
What might go flawed?
Different issues being equal, the true threat lies in Japanese tightening sustaining elevated U.S. Treasury yields, countering the affect of anticipated Fed price cuts.
This dynamic might dampen international threat urge for food, as persistently excessive yields elevate borrowing prices and weigh on asset valuations, together with these of cryptocurrencies and equities.
Somewhat than a sudden yen surge unwinding carry trades, watch BOJ’s broader international market affect.
One other macro threat: President Trump’s push for international fiscal growth, which might stoke debt fears, elevate bond yields, and set off threat aversion.
