BitMEX co-founder Arthur Hayes said in his Aug. 11 essay "Yen-quake" that the long stretch of cheap yen may be nearing its end, and that a U.S.-Japan response using the Federal Reserve’s Foreign and International Monetary Authorities Repo Facility, or FIMA Repo Facility, could function as another form of dollar liquidity expansion.
Hayes argued that such a setup could become a fresh catalyst for assets including Bitcoin and gold. Before getting into macro strategy and yen mechanics, though, he opened the piece with an unexpected reference to Taiwan.
Hayes opened the essay with a memory tied to Taiwan’s Spring Scream
Recalling the period around Japan’s March 2011 earthquake, Hayes wrote that he was working at Deutsche Bank in Hong Kong at the time, making markets in ETFs for Hong Kong and Singapore. One of the questions on his mind before the disaster, he said, was: could his body handle attending Taiwan Spring Scream again on a consecutive basis?
Spring Scream, long held in Kenting, is one of Taiwan’s best-known early independent music festivals. Hayes went on to explain the event in a footnote and gave it an emphatic endorsement, writing: "This is the most underrated music festival in Asia, I fucking love Taiwan."
The 2011 quake and a surging yen shaped his later thinking
That Taiwan anecdote was not incidental. Hayes framed it as part of the origin story for his current view on the yen. After the March 11 disaster, he was in a Hong Kong trading room watching severe shaking hit Deutsche Bank’s Tokyo office and the tsunami sweep through northeastern Japan.
The Nikkei dropped fast. At the same time, the yen strengthened sharply, with USD/JPY moving toward 70, near the strongest postwar zone for the Japanese currency. Hayes said he was then running a U.S. dollar-denominated MSCI Japan ETF position that carried yen exposure.
He recalled a senior trader telling him that after a major natural disaster, large Japanese domestic institutions such as insurers could repatriate overseas capital. That would mean selling foreign assets including U.S. stocks and bonds, then converting dollars back into yen, creating strong upward pressure on the currency.
Hayes said that firsthand episode became part of the backdrop for his renewed analysis of a possible major reversal in the yen more than a decade later.
Abenomics turned the yen into a global funding currency
According to Hayes, Japan moved in a very different direction after that period. Under Shinzo Abe’s Abenomics program, the Bank of Japan suppressed rates through large-scale bond buying and yield curve control, or YCC. Japan’s Government Pension Investment Fund, GPIF, also increased allocations to overseas equities and bonds. Hayes said the yen then lost more than half its value.
Low rates and a weak yen helped turn the currency into a key source of funding for global carry trades. Investors could borrow low-yielding yen, convert it into dollars and buy U.S. Treasuries, U.S. stocks or other higher-yielding assets.
The vulnerability, he said, appears when the yen starts rising quickly. Once that happens, the whole trade can reverse.
Hayes pointed to a recent example from July to August 2024. After the Bank of Japan raised rates, USD/JPY fell from about 160 to 140 in a short period, forcing some short-yen, long-risk carry positions to unwind. Both the Nasdaq 100 and the Nikkei at one point posted declines of more than 10%.
He says rate hikes or large overseas asset sales both carry heavy costs
Hayes described the current U.S.-Japan problem in simple terms: the yen is too weak, but the standard ways to make it stronger come with major side effects.
The first route would be aggressive Bank of Japan rate hikes to narrow the U.S.-Japan rate gap. Hayes said that could push Japanese government bond prices lower, raise government funding costs and accelerate the unwind of yen carry trades worldwide.
The second route would be to have GPIF, Japanese companies and financial institutions sell overseas assets and convert dollars into yen. That could lift the currency, but Japan is one of the largest holders of U.S. assets. Large-scale selling of U.S. Treasuries and U.S. equities could then hit American financial markets.
His preferred path is different: do not sell Treasuries. Borrow dollars against them.
Hayes sees the Fed’s FIMA facility as the key mechanism
In Hayes’ framework, Japan’s Ministry of Finance would post its U.S. Treasury holdings to the Fed through the FIMA Repo Facility and receive dollars in return.
- Post U.S. Treasuries to the Fed as collateral and obtain dollars.
- Sell those dollars in the foreign-exchange market and buy yen.
- Deploy the acquired yen into Japanese government bonds or equities.
That, he argued, would let Japan intervene in currency markets without dumping large amounts of Treasuries. Hayes said the result would be yen appreciation, lower Japanese bond yields and support for Japanese equities.
What matters most in his view is the other side of the transaction: the Federal Reserve. If the Fed supplies dollars to Japan and FIMA usage expands, the Fed’s balance sheet would expand with it. Hayes said that even if policymakers do not call it quantitative easing, he sees it as another version of money printing and global liquidity growth.
He estimates the potential scale and says the cap is the signal to watch
Hayes estimated that the Japanese government currently holds about $1.143 trillion in U.S. Treasuries, while GPIF holds roughly $230 billion, for a combined total of about $1.373 trillion.
He compared that stockpile with the pandemic period, when the Fed’s balance sheet grew by about $4 trillion from 2020 through the end of 2021. If a meaningful share of Japan’s Treasury holdings were converted into dollar liquidity through FIMA, Hayes said the scale would be significant for global markets.
At the moment, however, the outstanding loan cap for each FIMA counterparty is still only $60 billion.
For that reason, Hayes said the signal worth watching is whether the Fed raises or even removes that limit in the future, and whether large quasi-public Japanese institutions such as GPIF are brought into the eligible user base.
Bitcoin, gold, ETH and ENA are his preferred exposures, but he says policy confirmation has not arrived
Hayes said that if Washington wants to avoid forcing Japan to sell Treasuries while still encouraging a stronger yen, creating dollar liquidity through FIMA could become the lower-cost political option. He added that a re-expanding Fed balance sheet has historically been favorable for scarce assets such as Bitcoin and gold.
Based on that view, he said he is currently increasing exposure to Bitcoin, physical gold and gold mining stocks.
In crypto, he specifically named ETH and described Ethena’s ENA as a higher-risk trade with potentially higher upside. He also said that if a rise in dollar liquidity helps drive Bitcoin higher, basis yield on USDe could recover as well, potentially drawing capital back into the Ethena ecosystem.
Still, Hayes said he has not yet reduced his dollar position to the bare minimum. The real confirmation, in his words, would be a formal change to FIMA rules by the Fed. Until then, the thesis remains his policy projection rather than an implemented monetary policy shift.