The yen rises, the dollar falls and Bitcoin benefits. The Japanese currency appreciated by around 2.5% in two sessions, leading to a general decline in the greenback. The Dollar Index is now testing an important technical level, while bitcoin is climbing towards $79,000 and gold is also moving higher. This favorable configuration, however, hides a risk. A gradual rise in the yen weakens the dollar and supports assets listed in this currency. A sudden acceleration could, on the contrary, cause the unwinding of speculative positions financed in yen and trigger sales on world markets.
Key Points
The yen weighs 13.6% of the Dollar Index, but the compression of the Japan/United States rate differential weakens the dollar on all pairs
A weak dollar boosts global liquidity and reduces the opportunity cost of non-yielding assets like Bitcoin and gold
The yen carry trade finances part of the leveraged positions on the markets, including crypto
On August 5, 2024, a yen up 12% in five weeks caused Bitcoin to fall from 62,000 to less than $49,000 in a few hours
Rising Yen Weakens Dollar, Supports Bitcoin
The USD/JPY pair fell 1.4% on Thursday, to around 156.40 yen per dollar, after falling 0.9% the day before. Such a move is significant in one of the world's most liquid currency markets.
This increase in the yen comes as investors anticipate further monetary tightening in Japan. After firmer statements from board member Hajime Takata, markets are placing an increasing likelihood of an increase in the Bank of Japan's key rate, from 1% to 1.25%, at its meeting on September 18.
The movement directly affects the Dollar Index, or DXY. The yen represents around 13.6% of this index, behind the euro. Its appreciation therefore mechanically contributes to lowering the value of the dollar against the basket of six currencies followed by investors.
The DXY fell 0.4%, towards 99.22 points, and is approaching its 200-day moving average, located around 99.1. A sustained breakout of this level could encourage further dollar selling, although this technical indicator is not a guarantee.
For Bitcoin, the effect is currently favorable. A weaker dollar generally supports assets denominated in that currency and tends to ease global financial conditions. Bitcoin thus rose towards 78,800 dollars, while gold progressed in parallel.
This correlation does not mean that the yen alone explains the increase. US rates, flows to ETFs, economic statistics and investor positioning also remain decisive.
The carry trade can quickly reverse the movement
The support provided by the yen only works if its appreciation remains gradual. A rise that is too rapid could cause the opposite effect by forcing investors to unwind their carry trade strategies.
The principle consists of borrowing yen at low cost to buy assets offering a better return: stocks, foreign bonds or cryptocurrencies. This strategy has long benefited from the very low rates practiced in Japan and the weakness of its currency.
When the yen rises, the cost of redemption increases for investors exposed to this strategy. If the movement becomes abrupt, they may be forced to quickly sell their assets in order to buy back yen and close their loans. The decline then affects all risky markets, including Bitcoin.
A recent precedent illustrates this danger. In August 2024, the rapid unwinding of the yen carry trade contributed to a fall of around 20% in bitcoin in a few days.
The market therefore finds itself facing a fragile balance. An orderly appreciation of the yen continues to weaken the dollar and support Bitcoin. A disorderly acceleration would transform this aid into a threat, by triggering liquidations on assets financed by the Japanese currency.
