Japan’s move toward higher interest rates is shaking global markets and placing Bitcoin in a vulnerable position as one of the biggest casualties of the unwinding yen carry trade. With the Bank of Japan signalling a decisive shift away from ultra-low rates, investors who borrowed cheap yen to fund bets on high-risk assets are being forced to unwind those positions, and crypto is feeling the heat.
For decades, global traders relied on Japan’s near-zero rates to borrow yen, convert it into dollars, and chase higher yields in markets ranging from U.S. tech stocks to emerging-market bonds and cryptocurrencies. But that strategy is now breaking down. As Japanese bond yields rise and the yen strengthens, holding those leveraged positions has become expensive, triggering large-scale liquidations.
Bitcoin has already taken a hit, with outflows from crypto investment products and increased volatility as investors shift away from speculative assets. The tightening cycle is draining liquidity, a key driver of Bitcoin’s big rallies, and pushing traders to move capital into safer, yield-bearing instruments.
Analysts warn that Bitcoin’s sensitivity to global liquidity conditions means volatility will persist as long as the yen carry unwind continues. With rising rates worldwide and weaker risk appetite, crypto markets may face sustained pressure unless financial conditions stabilise.
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