The yen tumbled to 162.83 against the U.S. dollar on Monday, its lowest level in 40 years, deepening concerns in crypto markets where the yen carry trade has been a key source of liquidity. The Bank of Japan has raised interest rates, but the currency continues to weaken, drawing criticism from market participants.
The yen carry trade and crypto
The yen carry trade is simple: borrow yen at near-zero rates, convert to dollars or other currencies, and invest in higher-yielding assets — including cryptocurrencies. For years, this trade has been a quiet engine of liquidity in crypto markets, with traders using cheap yen to fund leveraged positions in Bitcoin and altcoins. The yen's slide to 162.83 makes that trade even more profitable on paper. But it also raises the stakes. A sudden reversal — say, from a surprise BOJ intervention — could force a rapid unwinding, sending shockwaves through risk assets.
Why the BOJ can't stop the slide
The Bank of Japan has already raised rates, but the yen keeps falling. The problem is the gap with U.S. rates. The Federal Reserve is holding its benchmark above 5%, while the BOJ's rate is still near zero even after hikes. That differential keeps the dollar strong and the yen weak. Critics say the BOJ isn't moving fast enough. The central bank faces growing pressure to act more aggressively, but doing so could rattle Japan's own bond market and economy. It's a tight spot, and the yen is paying the price.
What crypto traders are watching
Crypto traders are monitoring the yen's decline closely. Some are positioning for a potential intervention — a sudden yen spike that could liquidate leveraged crypto positions. Others are simply enjoying the cheap funding while it lasts. The key question is whether the BOJ will step in directly, as it has in the past, or let the yen find its own level. For now, the market is betting on more weakness. But that bet carries risk. A sharp yen rally could be the trigger for a broader crypto sell-off.
The Bank of Japan faces mounting criticism over its inability to halt the yen's decline. With the U.S. Federal Reserve holding rates high, the pressure on the yen is unlikely to ease soon. For crypto traders, the risk of a sudden yen reversal remains the biggest wildcard.
