Yen Slips as Japan Borrowing Costs Soar to 26-Year High

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

The cause of the rising borrowing costs is simple: prices are climbing again, with core inflation reaching 1.8% in July, up from 1.6% in June. This has given traders 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, and economists widely expect it to make this move.

For Bitcoin traders, the yen's movement is crucial because it affects the carry trade. When the yen jumps, positions that involve borrowing yen at almost no cost and swapping it for dollars to buy riskier assets turn loss-making within hours.