Market positioning signals controlled yen reaction while rising Japanese yields pose the more significant challenge for global risk assets.
With the Bank of Japan preparing for a rate increase, debate has intensified over whether a stronger yen could trigger a rapid unwinding of global carry trades. While these fears point to past episodes of volatility, current market positioning and yield dynamics suggest a different risk profile—one in which rising Japanese bond yields, rather than yen strength, may exert the greater pressure on global risk assets, including Bitcoin.
BOJ Hike Largely Priced In
The upcoming policy shift is widely anticipated. Japanese government bond yields are already near multi-decade highs, with the 10-year JGB trading around 1.95%. This level sits well above the projected policy rate of 0.75%, signaling that traders have spent months preparing for tighter BOJ conditions. Such pricing reduces the likelihood of a sudden shock following the rate adjustment.
Despite the policy change, Japan will still maintain one of the lowest benchmark rates among major economies, keeping the yield gap between Japan and the U.S. wide enough to discourage a mass exit from established carry positions.
Yen Carry Trade Pressures Remain Contained
Concerns about heavy yen buying appear overstated. Speculative positioning has remained net long on the yen since early 2025, limiting the scope for additional aggressive inflows after the rate hike. This stands in contrast to mid-2024, when speculative shorts fueled a rapid squeeze and a pronounced unwind across global markets.
Additionally, the yen’s traditional role as a dominant funding currency has softened, with alternative low-volatility currencies gaining ground in recent months.
The broader risk lies in the upward pressure on global bond yields as Japanese rates normalize. Higher yields worldwide can dampen risk appetite, affecting equities, digital assets, and other liquidity-sensitive markets. Any resulting volatility is therefore more likely to stem from shifting fixed-income dynamics than from abrupt currency moves.
Disclaimer
This content is for informational purposes only and does not constitute financial, investment, or legal advice. Cryptocurrency trading involves risk and may result in financial loss.