Let $$f:\mathbb{H}\to \mathbb{R}, (x,y)\mapsto \left(d_\mathrm{hyp}\left((x,y),\mathbb{S}^1\cap \mathbb{H}\right)\right)^2,$$ where $\mathbb{H}=\{(x,y)\in \mathbb{R}^2: y>0\}$ and $\mathbb{S}^1$ is the unit circle centered at origin.
In order to compute the distance, we need to compute the following: \begin{align*} d_\mathrm{hyp}\left((x,y),\mathbb{S}^1\cap \mathbb{H}\right) &=\inf\left\{ d_\mathrm{hyp}((x,y),(u,v)):(u,v)\in \mathbb{S}^1\cap\mathbb{H}\right\}\\ & = \inf_{(u,v)\in \mathbb{S}^1\cap \mathbb{H}}\inf\left\{l(\gamma):\gamma \text{ is a piecewise smooth curve joining }(x,y) \text{ to } (u,v)\right\} \end{align*} In order to compute all these things, we need tho compute the infimum of the length of piecewise smooth curves joining tose two points. I claim that the geodesic will be the circle passes trough the point $(x,y)$ whose center is on the $x$-axis and hits the unit cirlce perpendiculalry. I tried to prove the claim, but the expression is too much complicated to handle with.
Edit
The main concern of the problem is why does the geodesics (circle) hit the line or the unit circle perpendicularly.

You should confirm these: the geodesics in the upper half plane are of just two types ( parametrized by arc length), with real constants $A,B$ and $B > 0$
$$ A + i e^t $$ $$ A + B \tanh t + i B \operatorname{sech} t $$ The latter are semicircles with center on the real axis
Next, given your point at $z_0$ with positive imaginary part, we can map your diagram isometrically using $$ f(z) = \frac{z+1}{-z+1} $$ where the original unit circle is mapped to the (positive) imaginary axis. Your point $z_0$ is mapped to some $f(z_0).$ The geodesic that the imaginary axis at a right angle (and passes through your point) is centered at the origin with $A = 0,$ so it is just $ B \tanh t + i B \operatorname{sech} t$ with $B$ the norm of $f(z_0).$ The geodesic distance is just the absolute value of $t$ that takes you to $f(z_0)$
Let's see, given real numbers $a,b,c,d$ with $ad-bc > 0,$ you should confirm that the Mobius transformation $$ m(z) = \frac{az+b}{cz+d} $$ maps the upper half plane to itself, and is an isometry. This can be split into three special cases, $\frac{-1}{z} \; , \;$ $az \; , \;$ $z+b \; . \;$
In case you want it, the inverse mapping uses the adjoint matrix, call it $$ g(z) = \frac{z-1}{z+1} $$