yen

Recent articles question whether alarms over a potential unwinding of the yen carry trade following a Bank of Japan (BOJ) rate hike are overblown, arguing that the real risk to Bitcoin and other risk assets is persistently high global yields. While a rate increase could trigger some volatility, several factors suggest the impact may not be as severe as some fear.

Debunking the yen carry trade unwind fears:
Minor rate hike: Even with the expected increase, Japan's policy rate will remain low relative to other major economies like the US, where rates are significantly higher. The interest rate differential will likely still favor U.S. assets, making a mass unwind less probable.
Priced-in expectations: The BOJ's expected rate hike is not a surprise to the market. Japanese government bond (JGB) yields have already been rising and reflect expectations for higher rates. This forward pricing reduces the shock value of the actual rate adjustment.
Bullish yen positioning: Speculators' net positioning in the yen has been bullish for a period, which is unlike the bearish positioning seen before a previous scare in mid-2024. This means there is less room for panic buying and less reason for a severe unwinding of carry trades.
The more likely real risk:
Impact on global yields: The greater risk to risk-sensitive assets like Bitcoin is that Japanese tightening could keep U.S. Treasury yields elevated. This could potentially happen even as the U.S. Federal Reserve is expected to cut rates, countering the dovish impact.
Liquidity drain: Persistently high global yields raise borrowing costs and could dampen overall risk appetite, which would weigh on asset valuations, including cryptocurrencies. A tighter global liquidity environment, rather than a sudden yen surge, is the greater concern.
What happened in August 2024?:
An earlier BOJ hike in July 2024, when yields and positioning were different, contributed to significant crypto market volatility in August.
Some analysts point to this past event as a reason for caution, noting that previous tightening coincided with a substantial crypto market drop. However, others contend that market conditions now are different and that August's event was a unique shock.
Additional context: Japan's crypto tax reform:
On a related note, Japan is also planning a tax reform for cryptocurrency trading gains, which could have an impact on the domestic crypto market.
Starting in 2026, a 20% flat tax on trading gains will replace the current progressive tax system. The change aims to simplify crypto taxation and may encourage more market participation in Japan by aligning it with equities.

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