The yen jumped against the dollar on Thursday, building on recent gains and dragging the dollar index down to a key support test. Bitcoin and gold climbed too, which breaks the usual script where a stronger yen sets off a broad risk-off move. USD/JPY slid 1.4% to 156.4 after a 0.9% fall on Wednesday. The dollar index lost 0.4% to 99.22, sitting close to its 200-day moving average of 99.1.
Usually, yen strength goes hand in hand with a rush into safe assets. This time, though, risk assets such as Bitcoin and gold are rising as well. Analysts say the split comes from the inverse relationship between the dollar index and risk assets. A softer dollar lifts dollar-denominated assets and loosens global financial conditions, which helps Bitcoin and gold.
But the picture could change fast if the yen rally picks up speed. For the past decade, traders have used cheap yen borrowing to finance bullish bets on stocks, bonds, and cryptocurrencies. If the yen appreciates in a disorderly way, that could force an unwind of those carry trades and spark risk aversion. We saw a version of that in August 2024, when a yen carry trade unwind sent Bitcoin down roughly 20% in a matter of days.
Traders are now pricing in a 25-basis-point rate hike from the Bank of Japan at its September 18 meeting, taking the policy rate from 1% to 1.25%. U.S. and Japanese authorities have also been reported to intervene in support of the yen, cutting resistance to further yen appreciation.