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, nevertheless, overlooks precise positioning within the FX and bond markets, lacking the nuance and way more doubtless threat that Japanese yields, by anchoring and probably lifting international bond yields, might ultimately weigh over threat belongings quite 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 many years.
The yen (JPY) carry commerce entails buyers borrowing yen at low charges in Japan and investing in high-yielding belongings. For many years, Japan saved 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 quick on the yen had been two highly regarded 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 engaging. Greater 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 threat aversion, together with in BTC, as witnessed in August 2025.
Debunking the scare
This evaluation, nevertheless, lacks nuance on a number of ranges.
Before everything, 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 broad 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 upcoming 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 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 doubtless 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 stated in a current explainer.
Bullish yen positioning
Lastly, speculators’ internet lengthy yen positions depart little room for panic shopping for post-rate hike—and even much less motive for carry commerce unwinds.
Knowledge 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 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 many years, which doubtless triggered a shock adjustment. That is 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 below query lately, with the Swiss franc rising as a rival providing comparatively decrease charges and decreased volatility.
To conclude, the anticipated BOJ price 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 step by step 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 impression of anticipated Fed price cuts.
This dynamic might dampen international threat urge for food, as persistently excessive yields increase borrowing prices and weigh on asset valuations, together with these of cryptocurrencies and equities.
Quite than a sudden yen surge unwinding carry trades, watch BOJ’s broader international market impression.
One other macro threat: President Trump’s push for international fiscal enlargement, which might stoke debt fears, elevate bond yields, and set off threat aversion.
