Hedge funds reportedly built one of their biggest bearish bets against the Japanese yen in years, lining up around 85,000 net short contracts as pressure on the currency grows. As yen stress picked up, Bitcoin slipped below $87,000 in early December, with around $527 million in long positions wiped out in just 24 hours.
All of this sits inside a bigger macro story. The rising Japanese bond yields, shifting central bank policies, and a huge yen “carry trade” that now spills directly into our crypto portfolio.
(source – BTC JPY, TradingView)
Japanese Yen Short Squeeze?
Let’s translate the jargon. A short position means traders borrow something (in this case, yen), sell it, and hope to buy it back cheaper later. Hedge funds now hold around 85,000 net short yen contracts, one of the biggest, most brutal, bearish positions since 2024.
Why attack the yen? Japan kept rates ultra-low for years while other central banks hiked. That made the yen the cheap “funding currency” for a massive carry trade. You can borrow yen at low rates and use it to buy higher-yielding assets elsewhere. It’s a scheme where you can make a low-interest loan in one country to buy a high-yield bond in another.
The yen carry trade has ballooned to roughly $500 billion since 2011, and analysts say about $200 billion of that trade has already unwound in recent weeks.
This isn’t just FX nerd drama. When those trades unwind, investors sell what they bought with the borrowed yen—which often includes stocks, bonds, and yes, crypto. That is how foreign exchange stress jumps the fence into your Bitcoin chart.
How Does a Weak Japanese Yen Hit Bitcoin and Other Crypto?
Rising Japanese government bond yields lit the first match. The 10-year JGB reached around 1.84%, triggering a multi-asset sell-off and more than $640 million in crypto liquidations. When yields go up, “safe” assets in traditional markets pay more, so some traders pull money from riskier bets like altcoins and meme coins.
Bitcoin took a direct hit. During an intense phase of Japanese yen-driven unwinding, BTC slipped below $87,000, and longers watched around $527 million vanish in a day. This ugly volatility came from forced deleveraging as exchanges auto-closed positions when traders ran out of margin.
We’ve seen similar macro shocks before, especially when markets re-priced US rate expectations; crypto usually flinched hard. The yen story is the same movie on a different channel: global money gets nervous, liquidity tightens, and leveraged traders in crypto pay the price.