Markets are turning their attention to the Bank of Japan's interest-rate meeting this Friday as the yen continues to trade at 40-year lows against the US dollar. Analysts have warned that a policy shift could spark a repeat of the 2024 yen carry-trade unwind that sent shockwaves through crypto markets.
Yen at 40-year lows
The Japanese yen has been sliding for months, repeating levels not seen in four decades against the greenback. The persistent weakness has put pressure on the BoJ to act, but the central bank has so far stuck with its ultra-loose monetary policy. That stance is now being tested as inflation ticks up and the currency keeps falling.
The 2024 carry-trade unwind
Two years ago, a sudden shift in BoJ policy caught traders off guard. The yen strengthened sharply, forcing a massive unwinding of carry trades — where investors borrow cheap yen to buy higher-yielding assets like crypto. Bitcoin and other digital assets took a hit as leveraged positions were liquidated. The episode is still fresh in traders' minds.
What to watch on Friday
The BoJ is expected to either hold rates steady or deliver a modest hike. Either way, the market is on edge. A surprise move could trigger another round of yen strength and a corresponding sell-off in risk assets, including crypto. The timing isn't great — crypto markets have been relatively calm this summer, and a sudden jolt could shake out positions.
The BoJ's decision is due Friday. Whether it raises rates or holds steady, the market is bracing for volatility. Crypto traders are watching the yen closely.
