Yen Carry Crypto Trading Over? Japan Signals Rate Hike

Bank of Japan Governor Kazuo Ueda signaled a possible interest rate hike at the December 18-19 meeting, causing Japan's 2-year government bond yield to hit 1%, its highest since 2008. This development suggests the end of three decades of ultra-low interest rates that fueled the yen carry trade, where investors borrowed cheap yen to invest globally. The rising yields have already strengthened the yen and are prompting expectations of significant deleveraging across global assets, including cryptocurrencies like Bitcoin, which are sensitive to funding costs.

The shift is driven by inflation pressures, partly fueled by yen depreciation impacting import costs, and expansionary fiscal policy. While the BOJ aims for measured tightening to support financial stability and its 2% inflation target, the market anticipates several rate hikes, potentially pushing the policy rate to 1.4%. The unwinding of the carry trade means global markets must now rely more on fundamental strength than cheap leverage, potentially leading to volatility in asset classes that benefited from decades of easy Japanese funding.

(Source：BeInCrypto)