Japan's Weaker Yen Sparks Carry Trade Fears, Bitcoin Volatility
The Japanese yen has fallen below 158 against the dollar after traders reduced expectations for another Bank of Japan rate hike this month, keeping yen-funded carry trades attractive but also raising concerns about a potential abrupt reversal that could impact Bitcoin and the crypto market.
The yen fell as much as 0.5% to 158.21 per dollar on October 1, with swaps pricing for a hike by October 30 falling below 20% from more than 30% a day earlier.
A weaker yen does not necessarily signal the end of carry trades; in fact, it can make them more attractive as investors can borrow in yen and deploy capital into higher-yielding assets overseas. However, the risk comes if the yen suddenly reverses course.
Takuya Kanda, senior FX analyst at Gaitame.com Research Institute, warned that if the dollar/yen exchange rate rises above 158, intervention concerns may cap the dollar's upside.