Bitcoin tests $77,000 as yen rally, rising yields unwind carry trades

Bitcoin fell below $80,000, testing $77,000, as the yen's surge to a seven-month high and rising bond yields threatened a carry-trade unwind that squeezes leveraged risk assets.

"The BOJ will probably hike rates to 1.25% this month and do another 25-point increase in December or January next year, as a precaution against mounting inflation risks," Nobuyasu Atago, former BOJ official and chief economist at Rakuten Securities Economic Research Institute, said. "With the bond market already jittery, there's no point for the BOJ to stage a surprise and cause further turmoil."

The yen strengthened to around 153 per dollar, its strongest in seven months and well off the 40-year low near 164 hit in July, after hawkish Bank of Japan commentary and pressure from U.S. Treasury Secretary Scott Bessent cemented expectations the central bank will lift its policy rate to 1.25% at the Sept. 17-18 meeting. The BOJ has raised rates five times since starting its tightening cycle in 2024, and sources told Reuters it is weighing a faster pace of roughly one hike per quarter. Governor Kazuo Ueda has cautioned that the cumulative impact of past hikes needs scrutiny, while the bank's staff estimate neutral rates between 1.1% and 2.5%, leaving room for further tightening.

Higher Japanese rates erode the appeal of the yen-funded carry trade, in which investors borrow cheaply in yen to buy higher-yielding assets. An unwind forces those leveraged positions to close, triggering deleveraging across global markets that tends to hit risk assets hardest. Rising Treasury yields compound the pressure on Bitcoin, which pays no income: a stronger-than-expected August U.S. jobs report revived expectations of Federal Reserve rate hikes, lifting the opportunity cost of holding non-yielding assets. XRP, Ethereum and Solana were already caught in a $369 million liquidation wave as Treasury yields pressured risk assets, and Bitcoin slipped below $80,000 after the jobs data.

Spot Bitcoin ETFs pulled in $986.9 million last week, extending a three-week positive streak, but inflows have not offset the macro headwinds. Bitcoin gained 25 percent in August, its best month of 2026, with ETFs attracting $3.52 billion, yet the currency has since given back those gains as the dollar strengthened and yields climbed.

The depth of the pullback hinges on the yen and bond yields. If the BOJ delivers its expected hike on Sept. 17-18 and signals more to come, further carry-trade unwinds could push Bitcoin toward its next support level, with resistance overhead near $81,000. As a non-yielding asset, Bitcoin remains among the most exposed to a sustained rise in global borrowing costs.

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