Japan's Rate Hike Expectations Weaken Yen Amid Bitcoin Market Volatility
Japan's two-year government bond yield has hit its highest level in over 31 years, reaching 1.746% on Monday. This move is significant because it affects the yen carry trade, which has been funding global risk assets, including Bitcoin (BTC).
The two-year yields track what traders expect from the Bank of Japan (BOJ), and swap markets now price roughly 88% odds of a rate increase in September.
Despite the BOJ lifting its policy rate to 1% in June, the yen has continued to weaken. The currency traded at 160.16 per dollar on Friday and touched 160.20 again on Monday.
The spread between US and Japanese two-year yields has narrowed to 2.64%, which is half of what it was at its peak in 2023 and 2024. This divergence points away from interest rates as the main driver, suggesting that higher rates alone cannot solve Japan's confidence problem.