Yen's Rise Sparks Carry Trade Woes for Bitcoin
Japan's bond market is experiencing its biggest shakeup in decades, and it may have a ripple effect on global capital flows. Rising yields are making investors rethink their yen carry trades, which could trigger a sell-off in Bitcoin.
Foreign investors sold ¥1.28 trillion of Japanese 2-year and 5-year bonds in July, the largest selling since 2006, while still adding ¥889.8 billion to longer-dated debt maturing past 10 years. Yields are now at multi-decade highs across the curve: the 2-year sits at a 31-year high, the 5-year at a 30-year high, and the 10-year near 3%, a level last seen in 1996.
The yen carry trade involves investors borrowing cheap yen to invest in higher-yielding assets abroad, including Bitcoin. When Japanese yields rise and the yen strengthens, this trade becomes less profitable, forcing some investors to sell their overseas holdings to repay yen loans.