Bitcoin and Risk Assets Brace for Impact Amid Japan Rate Hike and Yen Carry Trade Concerns
The Bank of Japan (BOJ) is expected to raise rates next week, likely pushing the post-hike rate to around 0.75%, with the 10-year Japanese Government Bond (JGB) yield near multi-decade highs at approximately 1.95%.
This rate hike has renewed fears of an unwind in yen carry trades, where investors borrow in yen to invest in higher-yielding assets. An increase in funding costs or a strengthening yen could impact risk assets including cryptocurrencies.
However, analyses suggest these carry-trade concerns are overstated. Despite the hike, the rate differential remains wide—with 0.75% in Japan versus 3.75% in the U.S.—and much of the potential impact is already priced into markets. Speculators have maintained net bullish yen positioning since February 2025, indicating a reduced chance of a sharp yen surge or rapid carry unwind after the BOJ move.
This situation contrasts with the July 2024 episode, when a rate move from 0.25% to 0.5% triggered a carry unwind and losses in stocks and crypto. Currently, higher yields have been in place for several months.
The yen’s traditional role as a risk-on/risk-off indicator is now questioned, especially as the Swiss franc emerges as a competing funding currency with lower volatility.
Beyond Japan’s monetary policy, a sustained rise in U.S. yields driven by Japanese tightening could dampen global risk appetite, weighing on crypto and other risk assets. Additionally, fiscal expansion under President Trump could lift bond yields further and trigger risk aversion, increasing market volatility.
