Yen Tests 40-Year Lows as BoJ Meeting Looms
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- USD/JPY approached 164 on Tuesday, nearly matching 40-year highs hit the prior week, with the yen weakening despite the BoJ's June rate hike that briefly pulled the pair below 160.
- The Bank of Japan will set interest rates on July 31; the benchmark already sits at 1.0%, its highest since September 1995, with market-implied probability of a hold at 98% and Polymarket pricing a no-change outcome at 99%.
- The BoJ's June meeting summary stated it remains 'appropriate…to continue to raise the policy interest rate,' citing underlying CPI inflation approaching 2% and 'historically low' rates over the past three decades.
- The BoJ's April Outlook for Economic Activity and Prices warned that exchange-rate moves are 'more likely to affect prices' now that firms are shifting toward raising wages and prices.
- Analyst Ricky Ho wrote that yen carry-trade unwinds are 'rarely gradual' because participants deploy heavy leverage, and that 'the direction of policy has fundamentally changed' at the BoJ regardless of the September, October, or December meeting.
- The August 2024 yen carry-trade unwind, triggered by BoJ interventions, caused an immediate detrimental impact on Bitcoin and altcoins, and analysts warn the current setup invites a repeat.
- Data from TradingView shows USD/JPY building on new 40-year highs while Japan retains minimal capital controls and unmatched liquidity among non-dollar currencies.
Why it matters: Japanese rates at their highest since 1995 mean the funding leg of the carry trade is already expensive, yet USD/JPY at 40-year highs shows the trade is still being levered. If a BoJ surprise or hawkish shift forces yen repatriation, the August 2024 liquidity crunch that hammered Bitcoin and altcoins can repeat, with leveraged crypto positions the most exposed collateral.
