Bank of Japan yen decision looms as dollar nears 40-year high
USD/JPY is hovering near 164 before the Bank of Japan’s July 31 rate decision, raising fresh carry-trade concerns for crypto markets.
By Dev Ramirez · Crypto Correspondent
· 3 min read
The Bank of Japan yen decision is drawing extra attention this week as the currency trades near 40-year lows against the US dollar. For everyday investors, the risk is that a move or message from Japan’s central bank could ripple beyond foreign exchange and into crypto, where liquidity conditions can shift fast.
TradingView data cited by Cointelegraph showed USD/JPY approaching 164 on Tuesday, just under the 40-year high reached last week. A higher USD/JPY rate means one dollar buys more yen, so the yen is weaker against the dollar.
The Bank of Japan is set to decide on interest rates on July 31. Its benchmark rate is already at 1.0%, the highest level since September 1995, after the central bank raised rates in June, according to Cointelegraph.
Markets are mostly positioned for no immediate change. Cointelegraph reported that market-implied odds put the chance of a rate hold at 98%, while prediction market Polymarket showed 99% odds of no change as of Tuesday.
What will the Bank of Japan do about the yen?
The Bank of Japan has already signaled that more tightening could come if inflation and financial conditions support it. In its June meeting summary, the central bank said underlying Consumer Price Index inflation had been moving toward 2% and financial conditions remained accommodative, making it appropriate to keep raising the policy rate in response to economic, price and financial developments.
The Consumer Price Index, or CPI, tracks changes in prices paid by consumers and is a common inflation gauge. When inflation rises, central banks often raise interest rates to cool demand, though higher rates can also affect currencies, bond markets and risk assets.
The weaker yen adds pressure to the decision. In an April outlook document, the Bank of Japan said exchange-rate moves were more likely than in the past to affect prices as companies have become more willing to raise wages and prices. The central bank also said those currency moves could affect underlying CPI inflation through changes in inflation expectations.
Why does the yen carry trade matter for crypto?
The yen carry trade refers to borrowing in yen, a currency long associated with low interest rates, and using that funding elsewhere. The trade depends on low Japanese rates and a stable or weakening yen, because a stronger yen can make borrowed yen more expensive to repay.
Japan’s currency has become a major funding currency because of low interest rates, deep liquidity among non-dollar currencies and limited capital controls, according to Cointelegraph. The report also noted that Japan’s earlier current account and trade surpluses helped establish that role over past decades.
Crypto traders are watching because a sudden carry-trade unwind can drain liquidity from risk assets. Cointelegraph reported that interventions in August 2024 triggered a rapid unwind that pressured Bitcoin and altcoins.
Analyst Ricky Ho warned on X that the carry trade depends on two conditions: Japanese rates staying exceptionally low and the yen staying broadly stable or continuing to weaken. Ho also said carry-trade unwinds are “rarely gradual” because participants often use high levels of leverage, meaning borrowed money that can magnify gains and losses.
For now, the market consensus is that the Bank of Japan holds rates steady this week. The bigger question for investors is how strongly the central bank signals future hikes while the yen sits near levels that have already raised concerns across global markets.
This story draws on original reporting from Cointelegraph.
