With the Financial institution of Japan (BOJ) anticipated to hike charges subsequent week, some observers are apprehensive that the Japanese yen may 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 possible danger that Japanese yields, by anchoring and probably lifting international bond yields, may finally weigh over danger property somewhat than the yen itself.
Well-liked 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 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 quick on the yen have been two highly regarded trades, as a result of for a few years, the yen had been the most cost effective main funding foreign money and tech was persistently worthwhile.”
With the BOJ anticipated to lift charges, considerations are rising that the yen will lose its cheap-funding standing, making carry trades much less engaging. Increased Japanese rates of interest and JGB yields, together with a strengthening yen, may set off carry commerce unwinds – Japanese capital repatriating from abroad property and sparking broad danger aversion, together with in BTC, as witnessed in August 2025.
Debunking the scare
This evaluation, nonetheless, lacks nuance on a number of ranges.
Initially, 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. property and discourage mass unwinding of carry trades. In different phrases, BOJ will stay probably the most dovish main central financial institution.
Secondly, the upcoming BOJ fee 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 possible already priced in, decreasing 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 12 months, and traders have already repositioned for BOJ normalization since 2023,” InvestingLive’s Chief Asia-Pacific Forex Analyst Eamonn Sheridan stated in a current explainer.
Bullish yen positioning
Lastly, speculators’ web lengthy yen positions go away little room for panic shopping for post-rate hike—and even much less purpose for carry commerce unwinds.
Knowledge tracked by Investing.com exhibits that speculators’ web positioning has been persistently bullish on the yen since February this 12 months.
This starkly contrasts with mid-2024, when speculators have been bearish on the yen. That possible 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 possible 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 just lately, with the Swiss franc rising as a rival providing comparatively decrease charges and diminished volatility.
To conclude, the anticipated BOJ fee hike may convey 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 prone to occur step by step and are already partially underway.
What may go incorrect?
Different issues being equal, the true danger lies in Japanese tightening sustaining elevated U.S. Treasury yields, countering the affect of anticipated Fed fee cuts.
This dynamic may 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.
Reasonably 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 may stoke debt fears, raise bond yields, and set off danger aversion.
