A stronger Japanese yen is giving Bitcoin and other dollar-priced assets short-term support by pushing the U.S. Dollar Index lower, but the same move is also reviving concerns about yen carry trade unwinds.
Data cited in the report showed USD/JPY falling 1.4% intraday to 156.40 after a 0.9% drop on Wednesday. The euro, pound and Australian dollar also edged higher against the U.S. dollar. As a result, the Dollar Index slipped 0.4% to 99.22, moving closer to its 200-day moving average.
According to the analysis, a softer dollar usually benefits assets priced in dollars, including Bitcoin and gold, while also easing global financial conditions and lifting risk appetite. The picture can change quickly if yen appreciation becomes too fast. For more than a decade, investors have borrowed cheaply in yen to buy stocks, bonds and cryptocurrencies. A rapid rise in the yen can force those positions to unwind and trigger selling across risk assets. The report noted that when yen carry trades were unwound in August 2024, Bitcoin fell about 20% within a few days.
Markets are now increasingly expecting the Bank of Japan to raise rates to 1.25% from 1% on Sept. 18. The report also said U.S. and Japanese officials had previously acted to address what it described as “disorderly yen moves.”
A stronger Japanese yen is pushing the U.S. Dollar Index lower and giving short-term support to Bitcoin and gold, according to an analysis cited by CoinDesk.
USD/JPY fell 1.4% intraday to 156.40 after already declining 0.9% on Wednesday. The euro, British pound and Australian dollar also posted modest gains against the U.S. dollar. Against that backdrop, the Dollar Index (DXY) slipped 0.4% to 99.22, nearing its 200-day moving average.
The analysis said that kind of move tends to favor dollar-denominated assets such as Bitcoin, while also easing global financial conditions and improving risk appetite.
Fast yen gains could flip the setup
The report also warned that the dynamic can reverse quickly if the yen strengthens too fast. For more than a decade, many investors have borrowed cheaply in yen and deployed that capital into stocks, bonds and cryptocurrencies. If the yen rises sharply, those yen carry trades can be unwound, setting off selling in risk assets.
When yen carry trades were unwound in August 2024, Bitcoin dropped about 20% within a matter of days.
Focus turns to the Bank of Japan
Markets are increasingly pricing in a Bank of Japan rate increase on Sept. 18, with expectations that the policy rate will be lifted to 1.25% from 1%. That has kept pressure on the yen to strengthen further.
The report added that U.S. and Japanese officials had previously taken action to address “disorderly yen moves.” For now, moderate yen appreciation is seen as supportive for Bitcoin. If that appreciation becomes rapid and disorderly, the same trend could turn into a risk factor for BTC.
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