Yen's 2% Surge Triggers Crypto Carry Trade Fears

A sharp yen rally forces traders to sell risk assets to repay yen-denominated loans. The August 2024 episode saw global crypto market cap shed roughly $500 billion in two weeks, according to CoinMarketCap data. Bitcoin dropped about 27% from its peak during that unwind, crypto analytics firm Kaiko said at the time.

The yen had been trading near 162.3 to 162.9 in late July, levels not seen since the 1980s. That extreme weakness made the carry trade crowded. A 2% reversal in a single session suggests positioning is vulnerable, traders said.

Bitcoin and Ethereum are exposed because crypto exchanges offer margin trading funded with yen. The August 2024 precedent shows how quickly a yen spike can cascade into digital asset selloffs.

The yen's rally left USD/JPY at 159.20 late Friday. The pair's next test will come if the BOJ signals further tightening at its September meeting.