Yen Strength Bets Mount; Bitcoin Faces Carry Trade Risks

Hedge funds are piling into wagers that the Japanese yen will continue its ascent, with options market data pointing to the dollar-yen rate falling below 150 by the end of the year and, in some longer-dated contracts, as low as 140.

The positioning extends well beyond currency markets. The cheap yen borrowing that fueled years of leverage across global risk assets—and Bitcoin (BTC) has previously suffered when that funding turned costly.

Options Desks Crowd Into Yen Upside

Data from the Chicago Mercantile Exchange (CME) Group shows that the most-active dollar-yen contract on Tuesday was a November put option with a strike price of 142.86. Put options expiring by year-end outnumbered calls by more than three to one. Puts rise in value when the dollar weakens.

The dollar-yen pair dropped nearly 5% in the week through Tuesday before partially recovering, Bloomberg reported. Investors rushed to close out yen-funded carry trades as the currency appreciated.

The shift came quickly. Three weeks ago, the pair was trading near 159, and Japanese investors were still adding to their carry positions.

They net purchased more than 5 trillion yen of foreign assets in the two weeks to August 15. Rising Japanese inflation has since reversed the trade.

Hawkish signals from Bank of Japan Governor Kazuo Ueda and board member Hajime Takata ignited the reversal. The pair then broke through 155, a level that had withstood the Ministry of Finance’s intervention in May.

The pair was trading near 153.44 on Wednesday. It has fallen only 2.1% this year.

What a Stronger Yen Would Mean for Bitcoin

Cryptocurrencies have absorbed the move so far. Bitcoin held near $78,848 on Wednesday, up 0.26% over 24 hours. The asset weathered a similar shock just days ago.

The danger lies in the mechanics. A stronger yen increases the cost of repayment for investors who borrowed yen to fund dollar-denominated crypto positions.

At the same time, rising Japanese bond yields make yen-denominated assets more attractive, further reducing the incentive to keep the carry trade open. If both trends accelerate, investors could be compelled to unwind positions and sell risk assets.

Nomura reports that macro funds are now focusing on the 150 to 152 zone, with 12-month structures pointing toward 140. Whether Bitcoin can remain insulated may depend on how quickly the Bank of Japan validates those bets at its September decision.