Japan's 2-year yield hits 31-year high, raising Bitcoin unwind risk

Japan's two-year government bond yield climbed to 1.746 percent on Monday, a 31-year high, raising the cost of the yen carry trade that funds Bitcoin.

"The buyers arriving now aren't going anywhere. I believe the bottom is in. And I'm expecting a much brighter rest of the year," Simon Gerovich, chief executive at Metaplanet, said in Hong Kong this week.

The Bank of Japan lifted its policy rate to 1 percent in June, the highest since 1995, and the 10-year JGB yield now sits near 2.93 percent. Tokyo deployed 15.4 trillion yen, close to $97 billion, between July 30 and August 26 to support the currency, including a rare joint intervention with the United States on July 31. Yet the yen traded at 160.16 per dollar on Friday and touched 160.20 again on Monday, surrendering more than half of those gains.

Swap markets price roughly 88 percent odds of a BOJ rate increase in September. A move that well-anticipated is largely absorbed, but the leveraged position that has yet to unwind keeps building. Bitcoin trades at $79,087, up 1.3 percent over 24 hours, after slipping below $77,000 last week on hawkish remarks from Federal Reserve chair Kevin Warsh.

The US-Japan two-year yield spread has narrowed to 2.64 percent from a peak near 5 percent in 2023 and 2024, cutting the carry incentive roughly in half. For four decades, the yen tracked that spread closely. Now the two have separated — the currency keeps weakening while the reward for borrowing yen shrinks. That divergence points away from interest rates as the main driver. Mounting Japanese bond losses and heavy debt issuance suggest a confidence problem that higher rates alone cannot solve.

The August 2024 Playbook

Investors borrow yen cheaply and buy higher-yielding assets abroad. Sharp yen appreciation makes those loans costlier to repay, and forced selling can follow. August 2024 demonstrated the mechanism: Bitcoin and Ethereum lost as much as 20 percent as yen-funded positions closed.

The September BOJ decision matters less as a shock than as a marker. A rate move priced at 88 percent odds is largely absorbed. The risk sits in the leveraged positions that have yet to unwind, which continue to build as the yen weakens.

Bitcoin's vulnerability to a yen spike remains structural. If fresh intervention or higher Japanese rates push the currency sharply upward, investors may sell assets to cover yen-denominated debts, potentially dragging Bitcoin lower. The transmission chain runs from BOJ policy through the currency to leveraged global risk positions.

Gerovich's optimism reflects a longer-term view that Asian savers are ready to move beyond cash and embrace Bitcoin. His company buys and holds the token, giving him a financial stake in that outlook. Such demand could grow over time, but Bitcoin remains exposed to sudden market sell-offs when leveraged funding costs spike.

This article is for informational purposes only and does not constitute investment advice.