- Bitcoin traders are increasingly focused on Tuesday’s Bank of Japan meeting, where a widely expected rate hike to 1 percent could echo past shocks to crypto markets.
- A large build-up of speculative short positions in the yen raises the risk of a sharp short squeeze if the BOJ signals more aggressive tightening, potentially unwinding yen-funded carry trades that support risk assets.
- A stronger yen and rapid carry-trade unwind, especially if Governor Kazuo Ueda hints at faster or higher rate increases, could trigger broad market volatility, with bitcoin likely among the hardest-hit assets.
Bitcoin BTC$65,769.46 traders typically obsess over Fed meetings. This week, the one that matters might be in Tokyo.
The Bank of Japan is widely expected to raise its benchmark interest rate to 1% from 0.75% on Tuesday, bringing it to its highest level since 1995. That may sound like a routine policy decision from a central bank on the other side of the world and a non-event for crypto markets.
It isn't, and here is why. Leveraged funds increased their speculative short positioning in yen to over 115,000 contracts in the week ended June 9, the highest since November 2017, according to data tracked by the Commodity Futures Trading Commission. These are bets that the yen will continue to weaken, and there are a lot of them.
If the BOJ hikes rates as expected and signals further tightening ahead, these yen shorts may be unwound, triggering a rise in the yen. That would hurt yen-funded carry trades, in which investors borrow in yen to invest in higher-yielding, risk-on assets.
