Rising Yield on Japan's 2-Year Bonds; Does Yen Carry Trade Threaten Bitcoin Again?
The yield on Japan's two-year government bonds reached 1.746% on Monday, the highest level in over 31 years. This increase comes as markets are highly anticipating another interest rate hike by the Bank of Japan (BOJ) in September; an event that could raise the cost of borrowing yen in transactions known as "yen carry trade" and, if capital outflows intensify, could pose challenges for riskier assets like Bitcoin.
According to Mihan Blockchain, traders are currently factoring in an approximately 88% chance of an interest rate increase in Japan in September. This probability indicates that a significant portion of the market expects the Bank of Japan to tighten its monetary policy again at its next meeting. However, the main issue is not just the central bank's next decision; the ongoing weakening of the yen despite these policies suggests that deeper factors are influencing the Japanese currency market.
In June, the Bank of Japan raised its policy interest rate to 1%, the highest level since 1995. The yield on long-term bonds also continued to rise, with the yield on Japan's 10-year government bonds reaching about 2.93%.
Despite the interest rate hike, the yen did not strengthen as expected. The dollar's rate against the yen reached 160.16 yen on Friday and again advanced to 160.20 yen on Monday.
To combat the decline in the value of the national currency, the Japanese government spent about 15.4 trillion yen, equivalent to nearly $97 billion, between July 30 and August 26. These actions even included a rare joint intervention with the United States on July 31. However, the yen has so far lost more than half of the gains made as a result of these interventions.
One significant factor in market developments is the narrowing interest rate gap between the U.S. and Japan. The yield difference on two-year bonds between the two countries is now about 2.64%, while this gap peaked at nearly 5% during 2023 and 2024.
This difference has been one of the main pillars of the yen carry trade for years; a strategy in which investors borrow yen at low costs and transfer capital to higher-yielding assets in other countries. As the interest rate gap narrows, the incentive to continue these trades also decreases.
However, recent currency market behavior does not align with this pattern. The yen continues to weaken even as its interest rate advantage diminishes. This divergence indicates that other factors, including concerns about the state of Japan's bond market, high debt issuance, and investor confidence in the country's financial situation, may play a more significant role in determining the yen's value.
The yen carry trade is not just a trading strategy in the currency market, and its implications can spill over into global markets. Investors can use cheap yen borrowing to invest in assets like stocks, cryptocurrencies, and other risky assets.
Problems arise when the yen strengthens rapidly. In such cases, the cost of repaying yen loans increases, and traders may be forced to sell assets purchased in other markets to close their positions.
The crypto market experienced a clear example of this risk in August 2024. With renewed concerns about a potential interest rate hike in Japan and a strengthening yen, some yen-funded trades were closed, causing the prices of Bitcoin and Ethereum to drop by about 20% at one point.
Meanwhile, the market has largely priced in the likelihood of an interest rate hike in Japan in September. Therefore, if the Bank of Japan acts as expected, the rate hike itself is unlikely to create a significant shock for the market.
The main risk could arise from elsewhere: the volume of trades that are still based on yen financing. If Japan's monetary policy becomes tighter than investors expect or if the yen strengthens rapidly against the current trend, the likelihood of forced closures of some of these positions increases.
In such a scenario, Bitcoin and other risky assets could come under selling pressure. Thus, the September decision by the Bank of Japan may be more than just an interest rate event; it could serve as an indicator for assessing the status of one of the most important sources of liquidity in global markets.
-- Price
This content is provided for general informational purposes only and doesn't constitute financial, investment, legal, or tax advice. Any events, rewards, online promotions, or related information mentioned herein should not be considered a recommendation, solicitation, or invitation to purchase, sell, trade, or otherwise deal in any crypto assets. Crypto assets are highly volatile and may result in loss. The availability of WEEX services, products, and related events may vary by region. You are responsible for ensuring that your participation is in accordance with applicable local laws and regulations.
You may also like

US Open Partners with Kalshi for Last-Minute Deal, Officially Introducing Prediction Market

Sui to Host 'Basecamp 2026' in Singapore, Highlighting Agentic Economy
![[ETH Letter] Ethereum's Upcoming Upgrade 'Hegota' Scope Confirmed](/public-static/33_70806c0ee0.png?format=avif)
[ETH Letter] Ethereum's Upcoming Upgrade 'Hegota' Scope Confirmed

Robinhood Chain's DEX Volume Reaches Record Approximately 140 Billion Yen in One Day

Meme Coin BONER Raises $70 Million in Just 3 Days, Top Address Gains $1.73 Million

The Market Doesn't Move with Information Alone: Considering Web3 in the Era of Prediction Markets and AI Agents|HashHub Research

Dollar in September: The City Projects How High It Could Rise After Recent Official Intervention

Cook Bids Farewell as Apple Enters the Ternus Era

Cryptocurrency Treasury Firms Buy Bitcoin and Ethereum Again: What’s Behind It?

Renewed Clashes After a Month of Silence: Why the US-Iran Conflict Resumed and How the Market Reacted?

30-Year U.S. Treasury Yield Days Above 5% Reach Highest Level Since 2006

Is it a good time to take out a UVA mortgage? What experts think and what to understand before doing it

a16z Growth Fund Expands to $8.5 Billion with Additional $1.1 Billion AI Hardware Fund

a16z Reveals: Why Argentinians Buy Crypto as a Way to Buy Dollars? After the Crisis, Stablecoins Have Become a National Habit

Debate on Fed's 2% Inflation Target Influences Interest Rate Path

Bitwise Solana ETF Surpasses $1 Billion in Assets Under Management

Polymarket Discusses $1 Billion Funding, Valuation of 29 Trillion Won Mentioned

AI data centers are learning the power trick Bitcoin miners mastered first

Crypto market moves ‘as one block’ despite broader rally: Cryptex co-founder

Bitcoin needs ETF demand to hold as Fed rate hike risk grows: analysts

Solana Crypto Partnership Achieves Record 169.9 Million Transactions

Surge in IPOs in China: AI and Robotics Companies Lead Debuts in Shanghai and Hong Kong

HKDAP could take HKD beyond payments into on-chain finance, HashKey researcher says

NASA and SpaceX Delay Crew-13 Due to Leak in Dragon Spacecraft

Coinhouse Acquires Tilvest and Strengthens Its Position in Crypto Management

"Technology Takes a Backseat": How Stablecoins Transition from Savings to Everyday Payments

BTC Drops 62% Against Nasdaq, Resistance at 78500

Banks Improved Their Profitability, But Concerns Over Delinquency Persist: Key Insights from Recent Financial Statements

CME Targets ETFs: The First FCA-Regulated Multi-Asset Crypto Indices Are Born









