Yen Hits Four-Decade Low, Traders Bracing for Hawkish BoJ Move

The Japanese yen has hit a four-decade low at around 163.23 JPY per dollar, its weakest point since late 1986. This development is prompting banks to warn their clients that the Bank of Japan (BoJ) may soon take action to strengthen the currency.

For crypto traders, this news is significant because the yen carry trade has a profound impact on Bitcoin and other risk assets. The carry trade involves borrowing cheap yen-denominated loans, converting them into dollars or other currencies, and investing in higher-yielding assets such as stocks, bonds, or cryptocurrency.

If the BoJ tightens its monetary policy by hiking rates or allowing the yen to strengthen, traders will have to quickly unwind their positions. This can lead to a rapid sell-off of risk assets, including Bitcoin, which is known for its high liquidity and volatility.

Historical precedent suggests that previous rounds of BoJ tightening have coincided with significant drawdowns in Bitcoin, ranging from 20% to 30%. With the BoJ's policy rate now near 1%, a 31-year high following the June 2026 hike, markets are pricing in another 25-27 basis points of tightening through the end of this year.