The yen is on the brink of an all-time low: hidden risks for bitcoin and the crypto market
The Japanese yen has closely approached the psychologically important level of 161 against the dollar, poised to break the 40-year low recorded back in 1986. Neither the tightening of monetary policy nor large-scale interventions by Tokyo can halt the prolonged decline. This situation carries enormous consequences for global markets, and cryptocurrencies are no exception.
Why does the yen continue to fall despite the BOJ's efforts?
The root of the problem lies in the colossal divergence of monetary policy courses. On June 16, the Bank of Japan (BOJ) raised its key interest rate by 0.25 percentage points to 1% — the highest since 1995. The formal reason was inflation driven by expensive raw materials amid geopolitical factors. However, this proved insufficient. The U.S. Federal Reserve, on the other hand, maintains a high rate and signals possible further tightening. The gap remains critical.
Tokyo's massive currency interventions, which cost about $73.5 billion (11.7 trillion yen) in May, provide only a short-term effect. After each intervention, the yen quickly returns to its decline. This is a classic trap: Japan's huge national debt, many times its GDP, forces the BOJ to act very cautiously. A sharp rate hike would make debt servicing unsustainable. The market understands this and continues to pressure the currency.
How the yen's weakening affects bitcoin
The main channel of influence is the popular carry trade. Investors take cheap loans in yen, convert them into dollars, and invest in high-yield assets, including tech stocks and cryptocurrencies. As long as the yen steadily weakens and the BOJ hesitates, this arbitrage trade fuels markets, creating an illusion of stability.
However, this support is temporary and extremely dangerous. Every notable BOJ rate hike since 2024 has resulted in a deep 20–32% drawdown for bitcoin. The June 16 meeting also triggered a decline, though it was contained due to the overall weakness of the yen and an important geopolitical deal between the U.S. and Iran. The drop was limited to a symbolic 1%.
My analysis shows: the longer this imbalance accumulates, the more devastating the inevitable crash will be. If the yen sharply strengthens or the BOJ suddenly accelerates its pace, a massive forced closure of short yen positions (short squeeze) will occur. A similar unwinding of carry trade positions in August 2024 already caused panic selling on exchanges, and bitcoin fell along with stock indices.
The current situation is a time bomb for the entire crypto market. Investors should prepare for high volatility and sharp movements as soon as the Japanese regulator decides to take a decisive step.