BOJ rate hike could spark yen carry trade unwind, echoing 2024 BTC drop, outlet says

A potential interest rate hike by the Bank of Japan (BOJ) on June 16 could trigger an unwind of the yen carry trade, increasing volatility for Bitcoin (BTC), according to an analysis by CoinDesk. The yen carry trade is a strategy where investors borrow yen at low interest rates to invest in higher-yielding, riskier assets; an unwind involves selling those assets to repay the borrowed yen. The outlet noted that the BOJ is expected to raise its benchmark rate to a range of 0.75% to 1%, which would be its highest level since 1995. According to data from the U.S. Commodity Futures Trading Commission (CFTC), speculative short positions on the yen by leveraged funds surpassed 115,000 contracts as of June 9, the highest since November 2017. If the BOJ raises rates as anticipated and signals further tightening, these short positions could be liquidated, causing the yen to strengthen. This would in turn hurt the carry trade and could destabilize the cryptocurrency market. CoinDesk added that the current situation is similar to the period just before the rate hike on July 31, 2024. At that time, yen short positions were also at a record high, and a subsequent short squeeze caused the yen to surge. Following the rate hike announcement, the price of BTC fell from around $65,000 to $50,000 within a week.