With the Financial institution of Japan (BOJ) anticipated to hike charges subsequent week, some observers are nervous that the Japanese yen might surge, triggering an unwinding of “carry trades,” crushing bitcoin.
Their evaluation, nevertheless, overlooks precise positioning within the FX and bond markets, lacking the nuance and much more probably danger that Japanese yields, by anchoring and doubtlessly lifting international bond yields, might ultimately weigh over danger belongings slightly than the yen itself.
Common 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 buyers borrowing yen at low charges in Japan and investing in high-yielding belongings. For many years, Japan stored rates of interest pinned close to zero, prompting merchants to borrow in yen and spend money on U.S. tech shares and U.S. Treasury notes.
As Charles Schwab famous, “Going lengthy on tech and brief on the yen had been two very fashionable trades, as a result of for a few years, the yen had been the most affordable main funding forex and tech was constantly worthwhile.”
With the BOJ anticipated to lift charges, issues are rising that the yen will lose its cheap-funding standing, making carry trades much less enticing. Increased Japanese rates of interest and JGB yields, together with a strengthening yen, might set off carry commerce unwinds – Japanese capital repatriating from abroad belongings and sparking broad danger aversion, together with in BTC, as witnessed in August 2025.
Debunking the scare
This evaluation, nevertheless, 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 extensive sufficient to favor U.S. belongings and discourage mass unwinding of carry trades. In different phrases, BOJ will stay essentially the most dovish main central financial institution.
Secondly, the approaching BOJ charge hike is hardly surprising 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 the moment 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 situations are probably already priced in, lowering the shock worth of the speed adjustment itself.
“Japan’s 1.7% JGB yield isn’t a shock. It has been in ahead markets for greater than a yr, and buyers have already repositioned for BOJ normalization since 2023,” InvestingLive’s Chief Asia-Pacific Foreign money Analyst Eamonn Sheridan mentioned in a latest explainer.
Bullish yen positioning
Lastly, speculators’ internet lengthy yen positions go away little room for panic shopping for post-rate hike—and even much less motive for carry commerce unwinds.
Information tracked by Investing.com exhibits that speculators’ internet positioning has been constantly bullish on the yen since February this yr.
This starkly contrasts with mid-2024, when speculators had been bearish on the yen. That probably 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 probably 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 position as a risk-on/risk-off barometer has come underneath query lately, with the Swiss franc rising as a rival providing comparatively decrease charges and diminished volatility.
To conclude, the anticipated BOJ charge hike might carry volatility, however it’s unlikely to be something like what was seen in August 2025. Buyers have already positioned for tightening, as Schwab famous, and changes to BOJ tightening are more likely to occur progressively and are already partially underway.
What might go improper?
Different issues being equal, the true danger lies in Japanese tightening sustaining elevated U.S. Treasury yields, countering the affect of anticipated Fed charge cuts.
This dynamic might dampen international danger urge for food, as persistently excessive yields increase borrowing prices and weigh on asset valuations, together with these of cryptocurrencies and equities.
Moderately than a sudden yen surge unwinding carry trades, watch BOJ’s broader international market affect.
One other macro danger: President Trump’s push for international fiscal enlargement, which might stoke debt fears, elevate bond yields, and set off danger aversion.
