Japan reportedly intervened in the currency market by purchasing approximately $35 billion worth of yen, resulting in a nearly 3% drop in the dollar to 155.5 JPY. According to Bank of Japan money-market data, this intervention could be confirmed as Japan’s first official support for the yen in almost two years and its second-largest on record.
The BOJ’s outlook for April anticipates CPI excluding fresh food at 2.5% to 3.0% by fiscal 2026, with expectations of re-accelerating inflation due to rising oil prices and weakening yen impacting import costs. Given that 95% of Japan’s crude oil transits through the Strait of Hormuz, the BOJ assumes Dubai crude will range between $70-$80 without significant supply disruptions.
Tokyo’s tolerance for importing inflation amidst a declining yen reached its limit recently. USD/JPY peaked at 160.7 on April 29 before Japan’s intervention drove it down to 155.5. Meanwhile, the BOJ maintained its policy rate at 0.75% on April 28, despite dissent from three board members who favored a 1% rate. Similarly, the Federal Reserve held rates steady between 3.50%-3.75% on April 29.
The short-rate gap of about 275 to 300 basis points continues to make yen borrowing costs attractive globally, encouraging carry trades where capital is moved into higher-yielding assets. Intervention alone offers temporary relief; a Reuters poll from April 16 indicated that 65% of economists expect the BOJ rate to reach 1.0% by June 2026 end.
The yen’s significance in global finance was highlighted as it accounted for 16.8% of all foreign exchange trades worldwide, according to BIS data from its 2025 triennial survey. A separate study estimated yen-funded carry trades at roughly $250 billion before unwindings began, with UBS estimating a total near $500 billion, only half addressed by August 2024.
CFTC positioning data as of April 21 showed leveraged funds holding 80,220 long contracts against 148,717 short in CME yen futures, with gross shorts increasing over 16,000 week-over-week. A sudden yen appreciation necessitates covering these shorts and reducing the assets funded by those trades.
The BOJ’s intervention aims to stabilize FX markets temporarily but without rate alignment, it only postpones the inevitable. Higher U.S. yields maintain the carry trade incentive, explaining why yen weakness rebuilds and a sudden yen rebound can pressure risk assets like Bitcoin.
BIS data revealed that foreign-currency credit in yen contracted by 4.9% during 2025, suggesting a reduced carry complex force if unwound. Bitcoin’s sensitivity to global leverage means its balance sheets, margin calls, and risk appetites are influenced by macro funds managing both short yen and high-yield assets.
BIS’s review from August 2024 found that deleveraging and increased margins amplified shocks across risk assets, causing Bitcoin to drop 13%. As of May 1, Bitcoin traded in the $78,000 range with an intraday peak near $79,000. A yen squeeze forces macro books to decrease exposure, leading traders to sell Bitcoin due to its liquidity.
The bull case suggests if the BOJ raises rates by June, it could initiate a credible tightening cycle that compresses the carry spread and makes short-yen positions less attractive, potentially softening the dollar index. An orderly adjustment might see USD/JPY stabilize, allowing global risk markets to absorb repricings without triggering margin calls.
Coinbase Research’s second-quarter outlook indicated 75% of institutional respondents view BTC as undervalued at current levels, suggesting potential recovery post-dislocation. Conversely, repeated interventions or sharper BOJ policy repricing could prompt a rapid short-yen trade squeeze, leading to simultaneous VAR and margin cuts across macro portfolios.
In such scenarios, traders might sell Bitcoin due to its liquidity and the pressure on leveraged books. The August 2024 event serves as a reference for potential outcomes, with a possible drawdown of 8-15% in days or recovery over weeks if adjustments remain orderly. Bitcoin’s current position at $78,000 offers limited cushion against significant declines.
This analysis first appeared on CryptoSlate.