Bitcoin Traders Watch BOJ’s June 16 Rate Decision for Risk of Yen Carry Trade Unwind

Bitcoin investors are watching the Bank of Japan’s policy meeting on June 16 for signs that could jolt markets.

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

Crypto markets typically respond more to Federal Reserve policy. This time, however, the BOJ meeting could be a near-term source of volatility. Speculative bets against the yen have swelled, and any strong hint from the BOJ that more tightening could follow may force traders to cover those positions. Such a move could hit risk assets broadly.

US Commodity Futures Trading Commission data show leveraged funds held more than 115,000 speculative short yen contracts as of June 9, the most since November 2017. The buildup underscores how heavily markets are positioned for further yen weakness.

The risk is that those trades could reverse all at once. If the BOJ raises rates and signals more tightening ahead, the yen could strengthen sharply. That would raise the odds of an unwind in the yen carry trade, in which investors borrow in yen to buy higher-yielding risk assets.

The yen carry trade has long helped support global stocks, bonds and some risk assets. Some analysts believe that liquidity backdrop has also influenced crypto markets. A rapid unwinding of short yen positions could therefore weigh on volatile assets such as Bitcoin.

CoinDesk said the current backdrop resembles the BOJ’s rate increase in late July 2024. At that time, short yen positions had also climbed to record levels. After the BOJ raised rates, those trades unwound quickly, driving a sharp gain in the yen and wider volatility across US stocks, Japan’s Nikkei and crypto markets.

After the BOJ’s July 31, 2024 decision, Bitcoin fell from around $65,000 to about $50,000 in roughly a week. With Bitcoin now trading near $65,000 again, CoinDesk said investors should watch this BOJ meeting closely.

Much will hinge on how BOJ Governor Kazuo Ueda frames the outlook. If the rate increase comes as expected and Ueda keeps a cautious tone, the market impact may be limited. If he signals that additional rate hikes could come faster than expected, or that rates could rise above 1%, the yen could strengthen further and fuel broader market unease.

Bitcoin has recently climbed back above $65,000 on optimism over a possible peace agreement between the US and Iran, prompting a relief rally in crypto markets. Still, if the BOJ meeting triggers a covering of short yen positions and a pullback in carry trades, improved risk appetite tied to easing geopolitical tensions could come under pressure again.