Bitcoin’s breakout past $74,000 on Monday got a helping hand from Japan.
Bank of Japan Governor Kazuo Ueda cooled expectations for a rate hike at the upcoming April 28 policy meeting, signaling a more cautious stance amid uncertainty about how the Iran war will affect Japan’s economy.
Such decisions have proven to spill over into the crypto market in previous years. On August 5, 2024, a surprise interest rate hike by the BOJ triggered an unwinding of yen transmission that crashed bitcoin from $64,000 to $49,000 in 48 hours.
The carry trade, where investors borrow cheaply in yen and deploy them in higher-yielding assets, including crypto, had become one of the biggest sources of leveraged risk exposure globally. A unwinding of a yen tends to cause rapid sell-offs in risk assets, with bitcoin and major cryptocurrencies being the first to be hit.
But Ueda has just signaled that the deal will remain intact for at least another month. Japan’s 20-year bond auction on Tuesday drew its strongest demand since 2019 with a bid-to-cover ratio of 4.82 against a 12-month average of 3.27, confirming that institutional capital agrees that the bullish cycle is pausing.
Twenty-year yields, near their highest since 1997, fell nine basis points after the auction.
A dovish BOJ is keeping the yen weak, currently near 160 against the dollar. A weak yen keeps carry trade financing cheap. Cheap carry funding supports leveraged positions across risk assets, including the perpetual futures markets where bitcoin’s rally is being built.
Data from last week showed $2.1 billion in new bitcoin open interest and $2.2 billion in ether open interest in the 24 hours following the truce, with coin-denominated OI confirming net new longs. Part of this positioning may be funded, directly or indirectly, by the same yen liquidity that Ueda just retained.
Japan is also among the economies most exposed to the Strait of Hormuz, through which more than 90% of the country’s oil imports flow.
If US-Iran talks lead to a deal and oil prices continue to fall, Japan’s inflationary pressures will ease further, giving the BOJ even less reason to hike and extending the window in which the carry trade supports risk assets.
As such, the BOJ’s caution is another tailwind behind bitcoin’s breakout. The $73,000 ceiling held for six weeks, in part because macro headwinds, from oil to rates to geopolitics, gave leveraged traders no reason to push through it.
