Japan’s recent turn toward higher interest rates has revived a decades-old macro trade the “yen carry” and threatens to shake up global liquidity. For risk assets such as Bitcoin, the fallout from a possible yen carry unwind may translate into renewed pressure. What once fueled crypto rallies may now fan volatility.
Yen Carry Unwind: What’s Happening in Japan
- The Bank of Japan (BoJ) has moved to tighten monetary policy, pushing Japanese bond yields sharply higher.
- As yields rise and the yen strengthens, the traditional carry trade borrowing cheap yen to invest in higher-yield, dollar-denominated assets loses its appeal.
- Many leveraged positions funded via the carry trade are at risk of being unwound a move that could trigger forced liquidations of riskier assets, including Bitcoin.
Market Impact: Why Bitcoin Could Suffer
As the yen carry unwind gains momentum:
- Liquidity conditions globally may tighten. Assets like Bitcoin which benefited from leveraged capital flows could face significant outflows.
- Reports already note sizeable long-position liquidations: during past rate shocks, crypto suffered steep sell-offs as funding dried up.
- A stronger yen reduces dollar-returns when foreign investors convert profits back making dollar-denominated risk assets less attractive. That dynamic can further dampen demand for crypto.
Together, these pressures may limit near-term upside for Bitcoin and amplify volatility.
Expert Insight: Macro and Crypto Are Interlinked
Economic analysts warn this may be more than a short-term shock. The end of decades of ultra-low Japanese interest rates could mark a structural change in global capital flows.
Some macro investors believe carry-trade unwinds tend to trigger waves of deleveraging affecting not just crypto, but equities, commodities, and emerging-market debt.
If so, Bitcoin’s correlation with risk assets may deepen, and its reliance on external liquidity may be tested repeatedly in coming months.
Conclusion
Japan’s shift toward higher rates and the consequent unwinding of the yen carry trade could reshape the backdrop for global risk assets, including Bitcoin. What was once cheap funding and bullish momentum may turn into a headwind.
For now, Bitcoin remains under macro scrutiny. Investors should brace for heightened volatility as macroeconomic shifts ripple through the crypto ecosystem.
