Bitcoin traders usually obsess over Federal Reserve meetings. This week, the key event may unfold in Tokyo.
The Bank of Japan is expected to lift its benchmark rate from 0.75% to 1% on Tuesday, the highest since 1995. It sounds like a routine policy tweak from a distant central bank with little relevance to crypto.
It isn't. Leveraged funds built speculative yen short positions to over 115,000 contracts in the week ended June 9, the most since November 2017, according to CFTC data. These bets are that the yen will keep falling, and there are many of them.
Yen Shorts at a Nine-Year High
If the BOJ hikes as expected and hints at further tightening, these shorts may unwind, driving the yen higher. That would hit yen-funded carry trades, where investors borrow cheap yen to buy riskier, higher-yielding assets.
These carry trades have fueled bull markets in Wall Street and global bonds for years, and some analysts believe they also supported crypto. A sudden unwinding could destabilize markets broadly, including bitcoin.
Déjà Vu? Lessons from July 2024
The current setup echoes the period before the BOJ's rate hike in late July 2024, when yen shorts were also at record highs. After that hike, rapid short-covering sent the yen surging, triggering volatility across equities, the Nikkei, and crypto. Bitcoin plunged from roughly $65,000 to $50,000 within a week of the July 31 decision.
History may not repeat, but it rhymes. If Governor Kazuo Ueda delivers a cautious tone, markets might shrug off the move. But if he signals a faster pace of tightening or suggests rates could go well above 1%, the yen could strengthen sharply, causing jitters that hit Bitcoin hardest.