With the Bank of Japan (BOJ) expected to raise rates next week, some observers are worried about a rise in the Japanese yen, triggering an unwinding of carry trades, crushing bitcoin.
Their analysis, however, overlooks actual positioning in the FX and bond markets, missing the nuance and much more likely risk that Japanese yields, by anchoring and potentially raising global bond yields, could eventually weigh on risk assets rather than the yen itself.
Popular carry trades on the yen
Before we delve deeper, let’s analyze the yen carry trade and its influence on global markets over the past decades.
The yen (JPY) carry trade involves investors borrowing yen at low rates in Japan and investing in high-yielding assets. For decades, Japan has kept interest rates near zero, prompting traders to borrow in yen and invest in U.S. technology stocks and U.S. Treasuries.
As noted by Charles Schwab, “Long tech and short yen were two very popular trades because for many years the yen was the cheapest major funding currency and tech was consistently profitable. »
As the BoJ expects to raise rates, concerns are growing that the yen is losing its cheap funding status, making carry trades less attractive. Higher Japanese interest rates and JGB yields, as well as a strengthening yen, could trigger the unwinding of carry trades – with Japanese capital repatriating their foreign assets and triggering broad risk aversion, including for BTC, as was the case in August 2025.
Debunking fear
This analysis, however, lacks nuance on several levels.
Above all, Japanese rates – even after the expected increase – would stand at just 0.75%, compared to 3.75% in the United States. The yield gap would remain wide enough to favor American assets and discourage the massive unwinding of carry trades. In other words, the BOJ will remain the most dovish central bank.
Second, the BoJ’s impending rate hike is hardly unexpected and is already priced in, as evidenced by Japanese government bond (JGB) yields hovering near multi-decade highs. The benchmark 10-year JGB yield currently stands at 1.95%, more than 100 basis points above Japan’s official benchmark interest rate of 0.75% expected after the hike.
This disconnect between bond yields and policy rates suggests that market expectations for monetary tightening are likely already priced in, reducing the shock value of the rate adjustment itself.
“Japan’s JGB yield of 1.7% is no surprise. It has been on the futures markets for over a year, and investors have already repositioned for a BoJ normalization since 2023,” Eamonn Sheridan, InvestingLive’s Asia-Pacific chief currency analyst, said in a recent explanation.
Bullish positioning of the yen
Finally, speculators’ net long positions in the yen leave little room for panic buying after rates rise – and even less reason to unwind carry trades.
Data tracked by PK Press Club shows that speculators’ net positioning has been consistently bullish on the yen since February of this year.
This stands in stark contrast to mid-2024, when speculators were bearish on the yen. This likely triggered panic buying in the yen when the BOJ raised 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 about to exceed 1% for the first time in decades, likely triggering a shock adjustment. This is no longer the case, as yields are above 1% and have been rising for months, as previously reported.
The yen’s role as a barometer of risk aversion has been called into question recently, with the Swiss franc emerging as a rival offering relatively lower rates and reduced volatility.
In conclusion, the expected BoJ rate hike could lead to volatility, but is unlikely to resemble what was seen in August 2025. Investors have already positioned themselves for tightening, as Schwab noted, and adjustments to BoJ tightening are expected to occur gradually and are already partially underway.
What could go wrong?
All things being equal, the real risk is that Japanese tightening keeps U.S. Treasury yields high, countering the impact of expected Fed rate cuts.
This dynamic could dampen risk appetite globally, as persistently high yields increase borrowing costs and weigh on asset valuations, including those of cryptocurrencies and stocks.
Rather than a sudden rise in the yen canceling carry trades, look at the broader impact of the BoJ on the global market.
Another macro risk: President Trump’s fiscal expansion efforts, which could stoke debt fears, push up bond yields and trigger risk aversion.
