Japan's Bond Shift Threatens Bitcoin as Yen Carry Trade Unravels

Edgen Crypto

·Feb 01 2026, 12:21

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Key Takeaways

The long-standing Japanese Yen carry trade, a cornerstone of global liquidity for decades, is rapidly unwinding. A potential monetary policy shift by the Bank of Japan is causing turmoil in the country's bond market, creating a significant threat for risk assets funded by cheap yen, including Bitcoin.

End of an Era: The strategy of borrowing yen at near-zero interest rates to invest in higher-yielding global assets like Bitcoin is becoming unsustainable.
Policy Shift Driver: The Bank of Japan is signaling an end to its ultra-loose monetary policy, forcing a global re-pricing of risk as investors are compelled to close their leveraged positions.
Bitcoin Sell-Off Risk: Investors holding Bitcoin financed by yen-denominated loans may be forced to liquidate their assets to repay debt, introducing major selling pressure into the crypto market.

Japan's Bond Market Signals End of Decades-Long Carry Trade

For decades, Japan served as the primary source for one of the world's most popular funding strategies: the Yen carry trade. Investors borrowed yen at extremely low interest rates to purchase higher-yielding assets elsewhere, funneling a steady stream of capital into global markets. That era of easy funding is now facing an abrupt end. Signs of chaos in Japan's bond market suggest the Bank of Japan is preparing to abandon its ultra-loose monetary policy, a move that dismantles the foundation of the carry trade.

Bitcoin Faces Major Liquidation Pressure

The unwinding of the yen carry trade poses a direct and substantial threat to risk assets, with Bitcoin standing out as particularly vulnerable. A significant amount of cheaply borrowed yen was deployed into higher-risk, high-return assets, including cryptocurrencies. As the Bank of Japan's policy shift looms, investors are forced to unwind these positions by selling their assets to acquire yen and repay their loans. This dynamic could trigger a wave of forced selling and unprecedented liquidations across the Bitcoin market, introducing severe downward price pressure and heightened volatility independent of crypto-native factors.