Arthur Hayes says the macro signal he cares about most is the euro-yen pair, not some Treasury-yield headline or a stock index. In his latest essay, he says EURJPY could drop from roughly 185 to 140 or even lower by next June, and that a move like that would line up with a big jump in dollar liquidity. His take: that would open up one of the largest beta trades in crypto.
Hayes says he does not want to spend his life glued to screens. Fair enough. But as chief investment officer of a family office, he still needs a short list of prices that tells him whether fiat liquidity injections are speeding up or slowing down. Those signals, he says, let him flip the portfolio fast between long risk and cash. One more thing: he says he does not short.
Why Hayes is focused on EURJPY
Hayes says U.S. Treasury Secretary Scott Bessent is trying to push allied currencies higher against the dollar. Bond markets and FX markets are too big for any official to dominate forever, he argues, so private capital has to be steered into the same trade. And in his version of events, the market is being nudged toward one obvious expression: sell euros, buy yen.
He sets that inside a broader political and industrial plan. The Trump administration, and, as he puts it, whichever party runs things after 2028, wants to bring back the kind of U.S. industrial strength seen from 1945 through the 1980s. Hayes says the standard mercantilist formula is simple enough: tariffs to block foreign goods and a weaker home currency versus major trading partners.
For Hayes, China is still the real competitor. If the U.S. wants to fight for Europe’s import demand, he says several pieces have to fall into place at the same time: the dollar must weaken against the euro, Europe must stay politically fragmented, and the dollar must also weaken against key Asian export currencies such as the yen, won, and Taiwan dollar. So, in his view, there is no contradiction at all in EURJPY falling while the dollar weakens against the euro too.
His reading of the euro’s internal structure
Hayes calls the euro a bargain. Germany, in his framework, kept a low military posture and got tariff-free access for its goods across Europe in return. Under a shared currency, Germany’s export edge was not canceled out by exchange-rate appreciation, while German banks piled up big euro surpluses. Those savings were then recycled into loans to trading partners, letting them continue buying German goods.
He points to the Target2 clearing system as the balance-sheet version of that deal. German banks are net creditors; banks in the rest of Europe are debtors. The result, he says, is that Germany built a large net investment position, while countries like France gained from the euro and the common market in other ways. Hayes insists this is not some story about national character. Germany’s creditor status and France’s debtor status are, he says, just accounting mirror images created by the monetary regime.
In his view, the euro’s built-in weakness is that imbalances like these eventually push voters to want national sovereignty back. German voters may want more public spending and tougher labor protections. Voters elsewhere may want local jobs restored and an end to the boom-bust swings driven by German bank credit. Hayes argues that EU institutions and the European Central Bank do not want voters in major member states putting domestic priorities ahead of Brussels.
Why France sits at the center of his euro stress thesis
Hayes says France is one of the most dangerous stress points in the euro area. It is the bloc’s second-largest economy, but he argues its credit profile has slid into Europe’s weakest tier. His evidence starts with domestic saving behavior.
According to Hayes, one chart in the essay tracks Target2 balances since 2021. France started as a net creditor, meaning euro inflows into French banks were larger than capital leaving. Then it flipped in 2021, and France became the biggest debtor in the Target2 system. Hayes reads that as French savers and other European investors pulling euros out of French banks and moving them elsewhere in the euro area.
A second chart compares 10-year government bond yields for France, Spain, and Italy. Spain and Italy have long carried the label of big euro-area weak links. But Hayes says France’s 10-year yield performance has now deteriorated into the worst tier among euro-zone sovereigns.
He ties that to France’s fiscal setup. Government spending is about 60% of the economy, he writes, second only to Finland. France has to borrow heavily every year to fund widening deficits, and that keeps pressure on OAT yields. He also says France is leaning more and more on foreign hot money, mostly from Germany and Japan, to finance those deficits.
On politics, Hayes argues there is no broad appetite in France for a smaller state. Across party lines, he says many French voters think the problem is that the government has not done enough. He points back to the nationwide strikes that followed even a modest delay in the retirement age under President Emmanuel Macron. Looking toward the 2027 presidential race, he says polling showed Jean-Luc Melenchon in second place behind Marine Le Pen.
Hayes also points to remarks made by French Finance Minister Bayrou after a speech on Aug. 25, 2025: “Do not stir panic by dramatizing a French crisis. There is 3 trillion in debt, and 60% of it is held by foreign investors. Make them stand in awe of France. If they try to short it and bring France down, they will be the ones who pay the price in the end.” Hayes treats that as a bad sign. Talk like that, he writes, makes it easier to see why domestic and regional investors would want to move capital out of France. If France wants to keep the level of public spending its voters expect, he says, the endpoint may be capital controls and financial repression.
Japan as the trigger in his framework
Hayes says Japan is the fuse that could light the euro-area powder keg. Referring back to his earlier essay “Yen-Quake,” he repeats his view that the Bank of Japan does not want to raise rates. Instead, he says, the Japanese government is more likely to encourage private and quasi-official domestic institutions to sell foreign assets and bring capital home, which would strengthen the yen.
But Japan’s biggest pool of foreign assets sits in the United States, and Hayes argues Washington will not let one of its largest creditors dump Treasuries just to fix a domestic Japanese problem. So this is where, in his telling, Bessent’s answer appears: Japan, South Korea, Taiwan, and other U.S.-aligned Asian exporters can use the Federal Reserve’s Foreign and International Monetary Authorities repo facility, or FIMA, to get dollars against their Treasury holdings instead of selling them outright.
That leaves European assets as the second-largest pool available to liquidate. Hayes says Bessent recently used the Exchange Stabilization Fund, or ESF, to sell euros and buy yen, formally kicking off the campaign. And he says it happened without advance notice to the European Central Bank, breaking the usual diplomatic custom among central banks.
He then turns to what markets did after Japanese Finance Ministry official Katayama publicly urged Japanese corporate groups on July 10 to repatriate capital. French 10-year OAT yields rose 38 basis points during that period, he writes, while U.S. 10-year Treasury yields rose 22 basis points. Hayes reads that gap as evidence that Japanese institutions went from marginal buyers of French debt to marginal sellers at exactly the worst time for France.
He pushes the point into bank funding too. About 71% of French bank debt is held by foreign investors, according to Hayes, and he says that debt can come under pressure as well.
French banks, repo stress, and the Fed’s RMP tool
Hayes directly links French banking stress to the chance of faster Federal Reserve balance-sheet expansion. He zeroes in on BNP Paribas, saying its performance versus the Euro Stoxx index and the Euro Stoxx Banks index has already worsened. BNP Paribas is a global systemically important bank, he writes, and a major funding source for U.S. hedge funds. With foreign investors dumping debt and depositors trying to move money into Germany and Switzerland, he expects the strain to get worse.
In his telling, the ECB has tools that can suppress market pricing if bond stress starts threatening the euro’s survival. But he argues the ECB ties political strings to intervention. In plain terms, France may have to accept that Brussels outranks Paris before the ECB fully steps in. If that does not happen, Hayes says policymakers may simply let markets clear by themselves.
He says the ECB would prefer Macron’s successor to stay aligned with Brussels, and he even mentions ECB President Christine Lagarde as a possible candidate. French voters, in his reading, strongly resist that outcome and are moving instead toward left- or right-wing candidates who put France first.
Hayes then says the ECB may believe market pain can scare voters into picking the “right” candidate. He compares that logic to the pressure applied during Greece’s crisis in 2011. But he does not think French voters will react by accepting austerity. France’s youth, he notes, already mobilized over pension changes.
He says the spread between French OATs and German Bunds is already the widest it has been since the 2011 euro-zone debt crisis. Unless the ECB turns on its Transmission Protection Instrument, or TPI, French bonds should keep underperforming. By next May, when the French presidential election is decided, he expects the contradictions to collide.
That is the setup for what he calls a “Schrodinger’s euro.” Countries may not formally quit the euro, but in his scenario the Banque de France could move toward a soft exit by creating bank reserves and buying French sovereign and bank debt in the open market, then parking those securities on its own balance sheet. He says that would be quantitative easing banned under the ECB framework.
Capital controls would be necessary, in his view. If money could leave France freely, QE would just turn domestic savings into foreign assets. Once outflows are blocked, the country would in effect create a French version of the euro — what he calls a “livre-euro” — circulating at home, with foreign-exchange conversion subject to central-bank approval. If France went down that road, he argues, most of southern Europe would follow, while Germany would be left holding Europe’s strongest currency in what would amount to a de facto return of the deutsche mark.
Why Hayes thinks the Fed may have to print more
For Hayes, the link between European stress and dollar liquidity runs through the U.S. repo market. He notes that Fed Chair “Warsh” — his mocking label in the essay — has publicly emphasized the 2% inflation target and has also said the central bank’s balance sheet is too large. Hayes dismisses the practical value of that rhetoric. If crypto is going to have a real bull market, he says, Fed money creation needs to speed up, and the place to watch is the toolkit already being used.
He writes that the Fed is now absorbing 39% of short-term Treasury issuance, up from zero at the end of 2024. The Reserve Management Purchases, or RMP, program started in December of last year. What could make it bigger, he asks, is a retreat in repo lending by large banks.
And here French banks return to the center. Citing U.S. Treasury Office of Financial Research money-fund monitoring data, Hayes says BNP Paribas, Credit Agricole, and Societe Generale together account for about 20% of repo-market lending. If they pull back, he expects marginal repo rates to spike and bond-financing costs to get far more volatile.
That would hit relative-value hedge funds, he says, because those trades depend on leverage to capture tiny price gaps between cash Treasuries and derivatives. If managers stop feeling sure they can fund at SOFR or below, risk teams will make them cut leverage and reduce positions. Hayes describes hedge funds as the most important marginal buyers of Treasuries. If they back away, the Treasury’s cost of rolling short-dated debt jumps hard — something he says Bessent cannot allow.
Referring to Financial Times reporting, Hayes says the New York Fed would then need to expand RMP purchases in a meaningful way to replace the repo-market gap left by French banks. That is why, in his view, talk about shrinking the balance sheet is not believable. Treasury-market financing needs mean RMP purchases must continue.
As for the scale of that support, Hayes says it depends on Bessent’s Treasury buyback plan and on how aggressively the Treasury General Account, or TGA, is used to buy longer-dated debt. If long-end yields stay high and Bessent steps up those purchases, Hayes says Fed balance-sheet expansion could get close to $100 billion a month. He compares that with an average pace of about $22 billion a month since December 2026.
Bessent’s comments and the confidence behind the thesis
Hayes includes a striking quote from Bessent to show how he reads the policy stance: “Everyone else has poor information, while I have asymmetric information. So the market should ask: why would we intervene in the foreign-exchange market together with Japan? Do we know something the market does not? In the bond market, we are willing to carry out what is known as a Treasury twist operation. What do I know that the market does not know?”
Hayes says the tone sounds like a crypto trader bragging about being able to move markets and run a pump in a low-quality token. He adds that even if Bessent’s push for crypto regulation does not fully land, Trump still looks to him like the first U.S. president with a crypto-speculator instinct. Short version: Hayes thinks you can hear it in the people around him too.
The investment point is simpler than all that. Hayes believes Bessent would not speak with that kind of confidence unless he already knew the Fed could ramp up RMP money creation if necessary to keep the repo market intact. So Hayes tunes out Warsh’s public message and treats EURJPY as the cleaner read on policy and liquidity.
How he turns the macro thesis into a trade
In Hayes’s framework, EURJPY is not just another FX pair. It is a blended warning light for weakening French bank credit, rising political stress inside Europe, and a possible Fed liquidity response to keep the U.S. Treasury market working. He writes that French bank stocks already started selling off last month. As investors think through the chain of events and the French election gets closer, he expects credit conditions at those banks to deteriorate further. He also says the ECB may tolerate that pain in the hope that voters reject nationalist candidates on both the left and the right.
If that process speeds up, Hayes expects the first clean market signal to be a sharp drop in EURJPY. In his reading, that would mean French banks are getting close to a more visible stress event and the Fed is moving nearer to stepping in to protect Treasury-market plumbing. That is why he treats EURJPY as a warning alarm for an imminent short-term expansion in dollar liquidity.
Then he takes it one step further. Bessent’s endgame, Hayes says, is this “Schrodinger’s euro” result: no country has to formally leave the euro so long as national central banks effectively support domestic bond markets in their own interest. Germany winds up isolated with the region’s strongest currency. In that fractured setup, Bessent and Howard Lutnick could cut bilateral trade deals with individual European states, while the dollar weakens through Fed RMP purchases and through FIMA-based dollar provision.
His preferred expressions and crypto positioning
On execution, Hayes says investors who can access the market can buy EURJPY put options. He notes that listed options are hard to find and liquidity is poor. If a direct position is not possible, he says he gets EURJPY volatility exposure through an investment in David Dredge’s Convex Asia volatility fund. Investors with ISDA agreements can trade over the counter, though Hayes adds a warning from experience: the door into OTC derivatives is much bigger than the door out.
For crypto traders, Hayes says the asset class is especially well positioned to benefit from the liquidity impulse created by this policy chain. He identifies two printing channels.
- First, as he argued in “Yen-quake,” the Fed could release trillions of dollars through larger FIMA counterparty limits, allowing U.S. allies to obtain dollar liquidity without selling Treasuries. He says Japan would be the biggest user, which fits his stronger-yen view.
- Second — and this is the heart of the current essay — pressure on French banks and their pullback from repo lending could force the Fed to expand RMP in order to finance the U.S. fiscal machine. In that setup, a crash in EURJPY becomes the alert that French banks are in trouble and the Fed may need to act to keep Treasury markets functioning.
Hayes says his preferred crypto exposure has not changed. Bitcoin is still the core long-term position in the portfolio. For shorter-term 2026 speculation, he still names Ether with a $10,000 target, Ethena with a $0.5 target, and Ether.fi with a $2 target. He ends with a joke about Zcash, writing that he has no idea where it went and that maybe AI stole it from the mining pool.
The essay closes with a blunt line: Bessent is serious, and after a day skiing wet snow in Patagonia, Hayes says it is time to make money and enjoy life.