With the Bank of Japan (BOJ) expected to raise interest rates next week, some observers are concerned that the Japanese yen could rise, triggering an unwinding of “carry trades” that are crushing bitcoin.
However, their analysis overlooks the actual positioning of the currency and bond markets and misses the nuance and far more likely risk that Japanese yields, by anchoring and potentially lifting global bond yields, may ultimately outweigh risk assets rather than the yen itself.
Popular yen transactions
Before we dive deeper, let’s break down the yen carry trade and its impact on global markets over the past few decades.
Yen (JPY) carry trade involves investors borrowing yen at low rates in Japan and investing in high-yielding assets. For decades, Japan kept interest rates close to zero, prompting both traders to borrow in yen and invest in US technology stocks and US Treasuries.
As Charles Schwab noted, “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 expected to raise interest rates, concerns are rising that the yen will lose its cheap funding status, making carry trades less attractive. Higher Japanese and JGB rates, along with a strengthening yen, could trigger unwinding of the carry trade – Japanese capital being repatriated from overseas assets and triggering broad risk aversion, including in BTC, as witnessed in August 2025.
Denying the scare
However, this analysis lacks nuance on several levels.
First of all, Japanese interest rates – even after the expected increase – will be only 0.75%, compared to 3.75% in the US. The yield differential will still be large enough to favor US assets and discourage mass liquidation of carry trades. In other words, the BOJ will remain the most dovish major central bank.
Second, the impending BOJ rate hike is hardly unexpected and has already been priced in, as evidenced by Japanese government bond (JGB) yields hovering near multi-decade highs. The benchmark 10-year JGB yield is currently at 1.95%, more than 100 basis points above the official Japanese benchmark rate of 0.75% projected after the hike.
This disconnect between bond yields and policy rates suggests that market expectations for tighter monetary conditions are likely already priced in, reducing the shock value of the rate adjustment itself.
“Japan’s 1.7% JGB yield is not a surprise. It has been in futures markets for more than a year and investors have already repositioned for BOJ normalization since 2023,” InvestingLive’s Chief Asia-Pacific Currency Analyst Eamonn Sheridan said in a recent note.
Bullish yen positioning
Finally, speculators’ net long yen positions leave little room for panic buying after interest rate hikes – and even less reason to carry the trade.
Data tracked by Pakinomist shows that speculators’ net positioning has been consistently bullish on the yen since February of this year.
This is in sharp contrast to mid-2024, when speculators were bearish on the yen. That likely triggered panic buying of the yen as the BOJ raised interest rates from 0.25% to 0.5% on July 31, 2024, leading to the unwinding of carry trades and losses in stocks and cryptocurrencies.
Another notable difference at the time was that the 10-year yield was on the verge of breaking above 1% for the first time in decades, likely triggering a shock adjustment. This is no longer the case as interest rates have been above 1% and rising for several months, as discussed earlier.
The yen’s role as a risk-on/risk-off barometer has been called into question recently, with the Swiss franc emerging as a rival offering relatively lower rates and reduced volatility.
To conclude, the expected BOJ rate hike may bring volatility, but it is unlikely to be anything like what was seen in August 2025. Investors have already positioned themselves for tightening, as Schwab noted, and adjustments to BOJ tightening are likely to be gradual and are already partially underway.
What could go wrong?
All things being equal, the real risk is that Japanese tightening keeps US Treasury rates elevated, counteracting the impact of expected Fed rate cuts.
This dynamic could dampen global risk appetite as persistently high interest rates increase borrowing costs and weigh on asset valuations, including the value of cryptocurrencies and stocks.
Instead of a sudden rise in the yen that settles the deal, you can see the BOJ’s broader global market impact.
Another macro risk: President Trump’s push for fiscal expansion, which could stoke debt fears, lift bond yields and trigger risk aversion.
