The Japanese yen has weakened to 157.20 per dollar, a significant drop for a major global currency and one that has foreign-exchange traders watching for potential intervention by the Bank of Japan.
The yen’s slide matters far beyond FX desks. For decades, its low interest rates have made it the world’s preferred funding currency, powering massive carry trades in which investors borrow yen cheaply and deploy the capital into higher-yielding assets. A weaker yen typically amplifies this strategy’s returns by reducing the cost of repaying yen-denominated loans.
When the yen strengthens, however, carry trades unwind, often dragging risk assets lower. That dynamic was evident in August 2024, when bitcoin slid from around $65,000 to $50,000 after the BOJ raised rates for the first time in ten years, boosting the yen and tightening global liquidity.
With that history in mind, the yen’s current decline might seem like a positive signal for BTC and broader risk sentiment. Japan’s policy rate remains just 0.5%, well below the U.S. benchmark of 4.75%, providing a wide carry spread. There are even reports of Japanese retail investors hunting for returns in high-yield currencies such as the Turkish lira.
But the macro environment underpinning the yen has shifted. Japan is burdened with a debt-to-GDP ratio near 240%, one of the highest in the world. Post-pandemic inflation pressures and the new prime minister’s commitment to aggressive fiscal expansion have intensified concerns about the country’s fiscal sustainability. On Friday, the cabinet approved a ¥21.3 trillion ($135 billion) stimulus package, reinforcing expectations of more borrowing and increased government bond issuance.
These pressures are increasingly visible in Japan’s bond market. The 10-year government yield has risen to 1.84%, its highest since 2008, after lingering near zero for much of the prior decade. Long-dated yields are also sitting at multi-decade highs. Notably, this rise in yields is occurring alongside a weaker yen—a break from historical patterns and a sign that fiscal anxiety, not interest-rate differentials, is now dictating the currency’s direction.
Japan faces a policy trap: allowing yields to climb risks a fiscal crisis, yet keeping rates low could accelerate yen depreciation and fuel imported inflation. As Brookings Institution economist Robin Brooks noted, “If Japan stabilizes the yen by allowing yields to rise, there’s a fiscal crisis. If it keeps rates low, the yen goes back into a devaluation spiral. Too much debt is a killer.”
The result is an increasingly volatile yen, undermining its past role as the global benchmark for carry trades and risk appetite.
Meanwhile, other low-yielding currencies are emerging as preferred funding tools. Marc Chandler, chief market strategist at Bannockburn Global Forex, has highlighted the Swiss franc as an increasingly attractive alternative. Switzerland’s policy rate sits at 0%, and its 10-year government bond yields hover near 0.09%—the lowest in the developed world.
Given these evolving dynamics, bitcoin traders may find the Swiss franc—not the yen—serving as a more reliable indicator of global risk-on and risk-off flows in the months ahead.
Share this content:
