Yen shorts climb to the highest level since 2017
ChainCatcher, citing CoinDesk, reported that bitcoin traders need to watch the Bank of Japan’s interest rate decision on Tuesday. For the week ended June 9, leveraged funds’ speculative short positions in the yen rose to more than 115,000 contracts, marking the highest level since November 2017. That positioning places the BOJ decision and the direction of the yen at the center of this week’s liquidity discussion for crypto traders.
If the Bank of Japan raises rates to 1% as expected and signals further tightening, those yen short positions would face pressure to close. A short-covering move would push the yen higher and hit yen-funded carry trades. In such trades, investors borrow yen and use the funds to invest in higher-yielding risk assets. CoinDesk noted that these trades have supported bull markets in Wall Street and bond markets over the years, and are also viewed as having supported the crypto market.
The 2024 BOJ rate hike remains a reference point
The report also pointed to the market turbulence that followed the Bank of Japan’s rate hike in July 2024. At that time, rapid unwinding of yen shorts triggered a sharp rise in the yen, while Wall Street, the Nikkei index and the crypto market all saw severe volatility. Bitcoin fell from around $65,000 to $50,000 within one week. That episode showed how a sudden adjustment in yen-funded carry trades can spill over into major risk assets.
For the current decision, CoinDesk said that if BOJ Governor Kazuo Ueda indicates faster tightening after a rate increase, or points to rates rising above 1%, the yen would strengthen sharply and financial markets would experience turbulence. Because crypto assets are among the most sensitive to sudden liquidity changes, they would be among the markets hit hardest if yen-funded carry trades come under pressure again.