Bitcoin falls to $78,000 as yen rally pressures risk assets

Bitcoin fell to about $78,000 on Sept. 8 as Japan's 10-year yield hit 3 percent, the highest since 1996, raising yen carry-trade unwind risk.

US Treasury Secretary Scott Bessent has publicly flagged the risks of coordinated currency intervention between Washington and Tokyo, which have reportedly involved about $96 billion. Yen-funded carry trades could total as much as $500 billion, and when the yen strengthens, borrowers who took out yen loans owe more in dollar terms.

The yen has rallied sharply, with USD/JPY dropping from above 160 to about 154. The 30-year JGB yield has pushed even higher, approaching record levels near 4.2 percent. Rising Japanese yields simultaneously increase borrowing costs for carry-trade participants, squeezing both sides of the trade.

The Bank of Japan's policy rate now sits at 1 percent, the highest since 1995, following a rate hike in June. The BOJ's next meeting on Sept. 17-18 will determine the next leg of this move. If the central bank signals further tightening, expect the yen to strengthen further and bond yields to keep climbing.

The carry trade transmission chain

When Japanese government bonds offer 3 to 4 percent returns, the bar for holding assets that generate no yield gets higher. Bitcoin, gold, and growth stocks all fall into this category. Japan is the world's largest creditor nation, and Japanese institutions are among the biggest holders of US Treasuries and other foreign assets. When yields at home become attractive enough, capital flows reverse, with money flowing back to Tokyo.

During past episodes of sharp yen appreciation, bitcoin has experienced price drawdowns of up to 20 percent, according to historical data. The August 2024 yen carry trade scare offered a preview: bitcoin dropped sharply alongside global equities before recovering once the unwind pressure eased.

Rising yields and the discount rate problem

Rising global government bond yields increase the discount rate applied to long-duration assets, weighing on technology equities, gold, and bitcoin simultaneously. Climbing oil prices add inflationary pressure, complicating central bank policy expectations across major economies.

Spot bitcoin ETFs have added a structural buyer base that didn't exist during earlier episodes of yen-driven stress. Whether that's enough to absorb the selling pressure from a $500 billion carry trade unwind remains an open question. A 20 percent drawdown from current levels would put bitcoin near $62,000, roughly back to where it was trading in late 2024.

This article is for informational purposes only and does not constitute investment advice.