Japan's Interest Rates Hit 30-Year High...Will it Halt the Bitcoin (BTC) Rally?

▲ Japan, Bitcoin (BTC), Yen/AI-generated image

As Japan's 10-year government bond yield surged to a 30-year high, a warning light has flashed for the low-interest yen funds that underpinned the rally in stocks and Bitcoin (Bitcoin, BTC). The volume of yen short selling has also expanded to its largest level since July 2024, bringing the shock of the yen carry trade unwinding at that time back as a core market risk.

According to crypto media outlet BeInCrypto on July 7 (local time), Japan's 10-year government bond yield reached 2.825% on Monday, its highest level since October 1996. The yen weakened to around 162 yen per dollar, falling to its lowest level since 1986.

Prime Minister Sanae Takaichi's government plans to mobilize over 370 trillion yen in public and private investment across 17 strategic sectors by fiscal year 2040. This approximately $2.3 trillion project signals an increase in future government bond issuance, while the Bank of Japan (Bank of Japan, BOJ) continues to reduce its bond purchases. Macroeconomic analyst Bull Theory stated, "When declining bid demand, increased supply, and reduced BOJ purchases coincide, interest rates rise structurally, not just as a psychological issue."

The risk is the unwinding of the yen carry trade. Investors have been borrowing low-interest yen to invest in US stocks, government bonds, and cryptocurrencies, but rising Japanese government bond yields increase funding costs. After an unexpected interest rate hike by the Bank of Japan in July 2024 led to widespread unwinding, the Nikkei index plummeted 12.4% on August 5 of the same year, and Bitcoin temporarily fell below $50,000.

According to LSEG data, the volume of yen short selling is approximately $11.3 billion, the highest level since July 2024. Japan's Ministry of Finance deployed a record 11.73 trillion yen, or $73.6 billion, to defend the yen from April 28 to May 27, but the yen gave back all its gains from that period. Although the Bank of Japan raised its policy interest rate to a 31-year high of 1% on June 16, the trend has not significantly changed, and Goldman Sachs (Goldman Sachs) predicts the yen will weaken to 165 yen per dollar within a year.

This week's 30-year bond auction and future policy signals from the Bank of Japan are considered the next test. BeInCrypto reported that a gradual adjustment could give the market time to adapt, but a disorderly unwinding of the yen carry trade could spread volatility across stocks and cryptocurrencies within days.

[Article Key Summary]

-Japan's 10-year government bond yield rose to 2.825%, the highest level since October 1996.

-The volume of yen short selling expanded to approximately $11.3 billion, the highest level since July 2024.

-The precedent of the Nikkei index plummeting 12.4% and Bitcoin falling below $50,000 during the 2024 yen carry trade unwinding is again drawing attention.

*Disclaimer: This article is for investment reference only, and we are not responsible for investment losses based on it. The content should be interpreted for informational purposes only.*