Japanese exchange will pay you 5% interest to borrow your Bitcoin for a year

Doing this would be betting that there's less than a 5% chance of this exchange going bankrupt. If they did, you would be an unsecured creditor and would be last in line to get paid back in bankruptcy proceedings.

This is the opposite of speculating on a rising price. It is a way of shorting cryptocurrencies. Sell now and pay back your creditors after the crash.

The best case is the exchange is shorting the btc they borrow from investors.

Worst case, the exchange is insolvent and needs BTC to allow withdrawals to continue.

How can they generate more than 5% yield on an asset which provides no cashflow?

From proprietary crypto trading?

Selling and investing in high-yield junk bonds?

It can't possibly be just speculation on a rising price.

Could just be speculation on falling prices.

1. Borrow BTC

2. Sell borrowed BTC at high price point

3. Buy BTC including interest at lower price point at any time before payback date.

4. Give back BTC including interest at payback date.

Basically just a way to short sell BTC.

This is equivalent of getting a locate for short selling. 5% is the loan interest.