The yen weakened to 163 per dollar on Friday, its lowest since 1986. Traders are now bracing for a hawkish move from the Bank of Japan — one that could unravel billions of dollars in yen-funded carry trades and add fresh downward pressure on Bitcoin.
Yen at 38-Year Low
The Japanese currency has been on a steady slide this year, and 163 per dollar marks a psychological threshold. The last time it traded this weak, Ronald Reagan was in the White House and the Tokyo Stock Exchange hadn't yet peaked. The trigger this time? Expectations that the BoJ might finally tighten policy after years of ultra-loose settings. The central bank's next meeting is days away, and markets are pricing in a rate hike or a reduction in bond purchases.
Carry Trades in the Crosshairs
That's a big deal for crypto. For years, traders have borrowed cheap yen to buy higher-yielding assets — including Bitcoin. It's a classic carry trade: borrow where rates are near zero, invest where returns are fatter. But if the BoJ turns hawkish, the yen strengthens, and those trades reverse in a hurry. Borrowers rush to buy back yen, selling off the assets they bought. That can create a cascade, and crypto, with its 24/7 trading and thin order books, is often first to feel the pain.
Bitcoin's Exposure
Bitcoin hasn't been having an easy month. The yen move is another headwind. On one hand, some argue that a weaker yen and global monetary divergence could boost Bitcoin as a non-sovereign store of value. But in the short term, the unwind of carry trades tends to hit risk assets broadly. The correlation between Bitcoin and the yen carry trade has been noted before — during the 2024 yen volatility, BTC dropped sharply in sympathy. This time could be similar, especially if the BoJ surprises with a larger-than-expected move.
The BoJ's policy decision is expected on July 31. Governor Ueda has signaled a willingness to normalize, but the timing is tricky. A hike now would strengthen the yen, but it could also rattle global markets already on edge. For crypto traders, the date is circled. If the BoJ delivers, expect a volatile few days. If it holds, the yen could weaken further — and the carry trade keeps humming, at least for now.
