Hedge Funds Hammer Japanese Yen and Probably Bitcoin: Why Crypto Holders Feel the Shock

[Ben Graham]

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.

HEDGE FUNDS SHORTED JAPAN YEN

Speculators hold ~85K net short Yen contracts, the 2nd highest since July 2024.

2 weeks of heavy bearish bets.
US-Japan rate gap ~3%.
Japan real rates still deeply negative.

Same setup as 2024 before USDJPY >160.

Yen under pressure again. https://t.co/u2tm5rRQIj pic.twitter.com/9854RS0NCR

— Money Ape (@TheMoneyApe) December 30, 2025

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.

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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.

IF THE FED CUTS AND THE BOJ HIKES IN DECEMBER, THE RATE GAP BETWEEN THE U.S. AND JAPAN COLLAPSES.

A stronger yen and a weaker dollar suddenly make years of cheap yen-funded bets expensive to maintain.

That forces investors to unwind, selling assets to repay their yen positions.… pic.twitter.com/sKA4tiA6wZ

— Crypto Rover (@cryptorover) December 3, 2025

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.

What Does This Macro Stress Do to Crypto?

First, understand the pattern. A weakening yen often signals tighter global liquidity. That usually means less cheap money sloshing around for speculative bets in Bitcoin, altcoins, and DeFi. When traders unwind carry trades, they don’t just sell yen; they raise cash everywhere to close positions.

Second, Japan’s central bank matters more to your wallet than you think. The Bank of Japan’s moves on rates and bond-buying already influenced Bitcoin swings before, which we covered in our article on the BOJ rate hikes. If BOJ tightens more aggressively or bond yields spike again, we should expect more “out-of-nowhere” crypto volatility.

The BOJ hiked by..25 basis points

I mean, the market was expecting 50 bp, some were saying 75bp.

And so the Yen is weakening.

Let the chaos ensue pic.twitter.com/pOTKxjBgEh

— Peter R Hann Goldbug Weirdo/Silver Affectionado (@PeterRHann1) December 19, 2025

Third, big funds treat Bitcoin as one piece of a global risk puzzle. When they panic about FX and bonds, they dump crypto along with everything else. That doesn’t mean Bitcoin is broken. It means macro flows, not on-chain news, set the tone in the short term.

How Should We, Crypto Investors, Manage This Shock?

Start with risk, not FOMO. This type of move mainly hurts over-leveraged traders. If you use margin or high leverage on futures, you sit in the blast zone when macro shocks hit. Consider scaling back leverage or avoiding it entirely if you are still learning how these global stories affect prices. One thing for certain, leverage trading is prone to manipulation.

Next, zoom out and diversify your “defense.” Some investors balance Bitcoin with cash, gold ETFs, or other hedges when macro stress builds, just like what we discussed in our article here.

Although that doesn’t mean we should abandon the crypto ship. It means avoid putting 100% of your liquid wealth into assets that swing 10–20% on a central bank headline. We know crypto needs a trigger to move itself, or sometimes the move has been decided, but market makers need a trigger.

Every day you’re told:
• what to fear
• what to ignore
• what to believe
By the time it hits the news, the narrative is already decided.
Crypto just exposes what’s always been true

— SpinCoinArmy (@SpinCoinArmy) December 26, 2025

Finally, upgrade your information diet. Macro headlines like “yen shorts surge” or “BOJ signals policy shift” now matter almost as much as crypto-native news. Following key indicators like USD/JPY, Japanese bond yields, and major central bank meetings helps you understand if a Bitcoin dump comes from crypto fear or from global deleveraging.

Hedge funds will keep pressing their yen views, but you don’t need to play that game. Focus on position sizing, low or no leverage, and a time horizon longer than the next BOJ press conference, and macro storms like this become noise instead of a wipeout event.

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