Yen Strength Tests Bitcoin as $500 Billion Carry Trade Unwind Looms
Bitcoin is facing significant pressure as a perfect storm of macroeconomic factors converges on risk assets. Japanese government bond yields have surged to multi-decade highs, with the 10-year yield climbing to 3% for the first time since 1996.
The yen has also staged a substantial rally against the dollar, dropping from levels above 160 to around 153.9-154.3 in the USD/JPY exchange rate.
The Bank of Japan's policy rate now sits at 1%, the highest since 1995, following a rate hike in June 2026. Markets are pricing in further tightening ahead of the BOJ's next meeting on September 17-18.
The total size of yen-funded carry trades could be as large as $500 billion, with borrowers facing increased borrowing costs and dollar-denominated debt rising as the yen strengthens.