Bitcoin Investors Watch June 16 BOJ Rate Decision for Possible Yen Carry Trade Unwind

Bitcoin investors are closely watching the Bank of Japan's monetary policy meeting on June 16.

CoinDesk reported on June 15 that markets expect the BOJ to raise its benchmark interest rate to 1% from 0.75%. That would mark the highest level since 1995.

Cryptocurrency markets typically react more strongly to Federal Reserve policy. This time, however, the BOJ meeting could drive short-term volatility. Speculative bets on yen weakness have surged, and any strong signal of additional tightening from the BOJ could force investors to unwind short-yen positions, jolting risk assets broadly.

Data from the US Commodity Futures Trading Commission showed leveraged funds' speculative short positions in the yen exceeded 115,000 contracts as of June 9. That was the largest such position since November 2017. The buildup reflects heavy bets that the yen will continue to weaken.

The danger is that those positions could reverse at once. If the BOJ raises rates and signals the possibility of further tightening, the yen could strengthen sharply. That could in turn trigger an unwind of the yen carry trade, in which investors borrow yen to buy higher-yielding risk assets.

The yen carry trade has long been cited as a force supporting global equities, bond markets and some other risk assets. Some analysts also say that liquidity dynamic has affected the crypto market. A rapid unwinding of short-yen positions could therefore pressure highly volatile assets such as Bitcoin.

CoinDesk said the current setup resembles late July 2024, when the BOJ raised rates. At the time, short-yen positions had also climbed to record levels. After the rate increase, those positions were unwound quickly, driving a sharp rise in the yen and wider volatility across US stocks, Japan's Nikkei and cryptocurrency markets.

Following the BOJ's July 31, 2024 decision, Bitcoin fell from about $65,000 to roughly $50,000 in about a week. With Bitcoin now trading near $65,000 again, investors need to pay close attention to this week's BOJ meeting, CoinDesk said.

If Governor Kazuo Ueda signals a faster pace of tightening or suggests the benchmark rate could rise above 1%, the yen could strengthen abruptly and unsettle financial markets more broadly, CoinDesk reported.

The meeting will be chaired by BOJ Deputy Governor Ryozo Himino in an acting capacity. Deputy Governor Shinichi Uchida is scheduled to appear at the press conference afterward, while Governor Kazuo Ueda plans to present his views in writing.

Meanwhile, the crypto market has staged a relief rally, with Bitcoin recovering the $65,000 level on expectations of a peace agreement between the US and Iran. Still, any unwind of short-yen positions and a pullback in carry trades after the BOJ meeting could shake the improved appetite for risk assets that followed easing geopolitical concerns, according to the report.