Yen Weakness Ignored by Bitcoin as Japan's Borrowing Costs Soar

Japan's borrowing costs have reached their highest level since September 1996, with the 10-year government bond yield (JP10Y) touching 2.945%. This surge has caused the yen to slip back towards 159 per dollar, undoing almost half of its rescue rally this month.

The cause is rising prices, with core inflation reaching 1.8% in July, up from 1.6% in June. Traders are reading this as a green light for the Bank of Japan (BOJ) to lift its policy rate from 1% to 1.25%, its next step in exiting ultra-low rates.

The BOJ meets on September 17 and 18, with economists widely expecting the rate hike. This move could have implications for Bitcoin traders, who watch the yen closely due to the carry trade.

The carry trade involves investors borrowing yen at almost no cost, swapping it for dollars, and buying riskier assets. When the yen jumps, those positions turn loss-making within hours.