Arthur Hayes: Waiting for Fed Signals to Reload for the Crypto Bull Market

Author: Arthur Hayes, Co-founder of BitMEX
Compiled by: Golem, Odaily Planet Daily

Editor’s Note: In his latest article "Yen-quake," Arthur Hayes believes that the yen will appreciate against the dollar, with the most likely path being the Japanese government using the FIMA mechanism to pledge its held government bonds to the Federal Reserve for repurchase financing, borrowing dollars, and then using those dollars to buy yen. Hayes also states that this will lead to a surge in dollar liquidity, subsequently driving up the prices of assets like Bitcoin and physical gold. He believes that apart from Bitcoin and Ethereum being undervalued at this stage, ENA is also expected to rise 5-10 times in the coming months.

Arthur Hayes reveals that his "bullets" are not all fired yet, and what he must wait for now is for Waller to convene the subcommittee and amend the FIMA rules to pave the way for Japan to utilize the FIMA mechanism to promote yen appreciation. Odaily Planet Daily compiles the core content of the full text as follows, enjoy!

Over the past decade, the yen has weakened significantly, leading to a continuous rise in global asset markets. But like all good things that benefit wealthy financial asset holders, this situation will eventually come to an end. The yen is the most severely undervalued currency globally and is a focal point of debate between the U.S., China, and ordinary Japanese voters. There are three ways to solve the yen dilemma, but the U.S. Treasury and Japanese politicians only favor one.

I will explain how each method to promote yen appreciation works and summarize why the last one is the preferred option. Then, I will discuss how to politically implement this third option. Finally, I will elaborate on why Bitcoin and cryptocurrencies will experience a surge as dollar liquidity increases (I know this is also the reason you read my "human nonsense").

The three options are as follows:

1. The Bank of Japan (BOJ) significantly raises interest rates to eliminate the interest rate differential between the dollar and the yen (at least in terms of short-term rates);

2. The government lobbies domestic institutions and public entities (such as the Government Pension Investment Fund, GPIF) to change investment strategies, selling overseas assets and buying domestic assets;

3. [Preferred Option] The Ministry of Finance (MOF) pledges its U.S. Treasury holdings to the Federal Reserve through repurchase (repo) to obtain dollars, then sells dollars in the foreign exchange market and buys yen.

Before delving into the details, all "crypto enthusiasts" (degens) should ask themselves: why discuss yen appreciation at this time? For decades, countless people have asserted that the yen is about to appreciate and end the global carry trade. Two weeks ago, high-ranking monetary policy officials from both the U.S. and Japan implemented a joint currency manipulation, which, of course, the officials euphemistically called "intervention." The same behavior, if done by ordinary people, would be called "collusion" and "conspiracy"; but when the manipulators are states, the terminology changes completely.

U.S. Treasury Secretary Yellen declared that he hopes the Federal Reserve will raise the trading counterparty limit for the FIMA repo tool so that the Japanese Ministry of Finance can use its vast asset reserves to defend the yen's exchange rate. The Japanese Ministry of Finance also announced that it is working with the U.S. side to strive to lower the dollar-yen exchange rate. The authorities have clearly stated that they will change the global monetary landscape, so we must take this seriously.

Three Options to Strengthen the Yen

Options one and two are fundamentally unfeasible because the parties involved cannot bear the political and economic consequences of deviating from the established policies since the 2010s.

Option One: BOJ Raises Interest Rates

Currency trading often relies on interest rate differentials, and the yield on the dollar is 2.75% higher than that of the yen. Borrowing yen, converting to dollars, and purchasing U.S. Treasuries can yield positive interest rate differential returns. Therefore, according to the no-arbitrage principle, the dollar-yen exchange rate must rise (i.e., the yen depreciates against the dollar) to offset this interest rate differential. The most direct way to appreciate the yen against the dollar is for the BOJ to raise interest rates to align its rate level with other central banks that have raised rates post-COVID.

To understand the challenges the BOJ faces in raising interest rates, it is essential to remember that due to the implementation of yield curve control (YCC) policy over the past decade, which limits the yield on 10-year Japanese government bonds by printing money to buy bonds, the BOJ has become the largest holder of these "junk" Japanese government bonds.

Once interest rates rise, bond prices will fall; the lower the bond prices drop, the larger the unrealized losses for the BOJ. Unlike ordinary investors, the BOJ can endure unlimited yen losses as it can print money indefinitely. However, if the BOJ's massive money printing leads to a loss of global confidence in the yen, resulting in the yen no longer being accepted for transactions in oil, food, medicine, etc., the situation could become critical.

Although we have not yet reached this point, the BOJ must confront this potential catastrophic scenario. It is precisely because of the fear of seeing losses on its balance sheet that the BOJ has hesitated and only dared to make slight interest rate increases, watching the market sell off long-term Japanese government bonds. The result is that the yen continues to depreciate, while inflation driven by imported energy severely impacts the foundation of Japanese society.

Politicians do not want the BOJ to raise interest rates because they must issue Japanese government bonds to cover fiscal deficits. If yields rise, the cost of debt servicing will also increase, which will weaken their ability to "buy off" ordinary citizens through various government subsidies (usually consumption tax reductions).

If the BOJ rapidly raises interest rates, leading to yen appreciation and increased volatility in the dollar-yen exchange rate, all investors who financed global stocks or bonds using yen will be forced to close their positions.

Do you remember July 2024? At that time, the yen exchange rate rose from 160 to 140 in just a few trading days. I wrote two articles analyzing this in depth, but in short, the new BOJ governor Ueda unexpectedly announced an interest rate hike and promised further increases in the future. The market panicked, and those who shorted the yen and went long on other financial assets were forced to close their positions. There were rumors that several hedge fund PMs were forced to leave as a result, just like Kenny G ended the AI stock god Leopold.

At that time, the yen exchange rate hit 140, and both the Nasdaq 100 index and the Nikkei index fell by more than 10%. The BOJ panicked and announced on August 12 that it would consider "market conditions" when assessing future interest rate paths, which effectively meant that future rate hikes had been shelved. As soon as the news broke, the yen weakened, and the stock market rebounded, regaining its upward momentum.

Compared to other central banks, the BOJ is moving too quickly in the process of normalizing interest rates and cannot bear the severe market pressures that arise from this.

Option Two: "Japan Inc." Sells Overseas Assets to Repatriate Yen

I define "Japan Inc." as the enterprises and public sectors holding financial assets.

Albert J. Alletzhauser recounts an interesting anecdote in his book "Nomura Empire: Inside Japan's Legendary Financial Dynasty": After the stock market crash in 1987, the Japanese Ministry of Finance instructed Nomura Securities to buy U.S. stocks to support the market. As a private enterprise, Nomura was under no obligation to follow this directive, but Japan is a society that values conformity and collective action, and Nomura ultimately complied.

Often, the highest goal of enterprises is not shareholder returns but achieving full employment and maintaining "national honor" (whatever that definition may be). If the government suggests that private enterprises and individuals sell overseas assets (mainly U.S. stocks and bonds), sell dollars to buy yen, and repatriate funds, "Japan Inc." will have to comply.

The most significant indicator signaling "Japanese funds repatriation" is the movement of Japan's largest pension fund—the Government Pension Investment Fund (GPIF). The GPIF is managed by a bureaucratic committee whose members are appointed by various government departments.

In 2014, to align with the large-scale money printing policy under "Abenomics," the then Prime Minister spent years replacing the head of the GPIF, prompting it to vote to increase the allocation of overseas stocks and bonds in its investment portfolio. This was crucial because the GPIF manages an investment portfolio worth between $1 trillion and $2 trillion. When their investment strategy changed in October 2014, it initiated an unstoppable wave, as they began selling yen for dollars and buying U.S. stocks and bonds.

This move created a structural yen seller, reassuring speculators that they could finance various financial assets using cheap yen without worrying about yen appreciation when rolling over loans or repaying.

I mention the GPIF because the head of the Japanese Ministry of Finance, Mr. Kitayama, recently stated that he believes it is time to adjust the GPIF's investment strategy to favor domestic securities over foreign securities. However, the bureaucrats within the GPIF are not buying it and have publicly stated that they will adhere to the best interests of the policyholders. Clearly, given that they are supporters of "Abenomics," they will never support shifting investment focus to domestic securities.

Just as Abe controlled the situation through personnel arrangements between 2012 and 2014, Prime Minister Kishida must take similar measures. For us investors, the signal is clear: the GPIF's investment strategy will eventually change, forcing it to sell foreign securities worth hundreds of billions of dollars, and the repatriation of funds will push up the yen exchange rate.

This process will take years to complete, but it is enough to make Yellen anxious, as it means that "Japan Inc.," as one of the largest holders of U.S. securities, will shift from a buyer to a seller position. This will destroy the stock and bond markets that "Uncle Sam" relies on to support its extravagant empire. However, because "Uncle Sam" guarantees Japan's national security, "Japan Inc." cannot actually sell its U.S. assets.

What has been said above is not new information. Everyone believes that the yen exchange rate is at a low level, and both the U.S. and Japan hope for the dollar to appreciate against the yen. But if the dollar-yen exchange rate falls from 160 to 90 (the fair value calculated by purchasing power parity), neither side can bear the losses that would result.

And from the moment Trump’s friend, "Weasel" Waller (who indeed looks like a weasel and acts just as sly and insidious), took office as the chairman of the Federal Reserve, the third option has been approved to start.

The "Treasury-Fed Agreement" of 2026 remains solid and effective; in addition to using reverse repo tools and policy rates below the nominal growth rate to directly fund the short-term bonds issued by Yellen, Waller also has the authority to implement "Option Three," thereby adjusting the dollar-yen exchange rate to the level needed to rebalance the global economic system once and for all.

Option Three: Borrowing from the U.S.

Yellen makes it clear that the Japanese Ministry of Finance and Japanese companies should not raise the funds needed to boost the yen by selling U.S. securities, but should use the FIMA mechanism to pledge their held government bonds to the Federal Reserve for repurchase financing, borrow dollars, and then use those dollars to buy yen. There is a small flaw in his plan, which I will discuss later, but the "box and arrow" diagram above illustrates this process. Let’s go through this process again:

1. The Japanese Ministry of Finance purchases government bonds and obtains dollar loans from the Federal Reserve's FIMA mechanism;

2. The Japanese Ministry of Finance sells dollars in the global foreign exchange market and buys yen;

3. The Japanese Ministry of Finance reinvests these yen funds domestically by purchasing Japanese government bonds and stocks.

The main impacts of this policy include:

· The Federal Reserve provides dollar funds through money printing, and its balance sheet will expand in tandem with the increase in the outstanding balance of FIMA repos;

· The USD/JPY exchange rate falls, indicating yen appreciation;

· Japanese bond yields decrease due to yen purchases of Japanese bonds;

· The Japanese stock market rises due to yen purchases of stocks.

Who is the "sucker" here?

1. American taxpayers: Japan owes American taxpayers a sum of money that will never be repaid for political reasons. This is purely a money printing act that will trigger inflation in financial assets and physical goods. The U.S. cannot use its front-line bases in the Asia-Pacific to confront China and Russia to demand repayment of this loan.

2. Anyone shorting the yen: Once the trend becomes clear, they must close their positions immediately. This is not a big problem because the volatility of the USD/JPY exchange rate will decrease, allowing for an orderly unwinding of yen carry trades over the years.

Why has Plan Three not been implemented?

The current situation is that the FIMA mechanism has a cap of $60 billion on outstanding loans to each counterparty. In the recent action to manipulate the USD/JPY exchange rate, the U.S. Treasury and the Japanese Ministry of Finance invested over $100 billion but only managed to push the yen up by 5%, and this appreciation effect lasted only a few trading days. To utilize the FIMA mechanism, this cap must be completely removed, and the range of eligible counterparties must be expanded to include large Japanese corporations and quasi-public investment institutions (such as GPIF).

Who manages the FIMA mechanism? During the COVID-19 pandemic, the Federal Open Market Committee (FOMC) delegated the authority to adjust the operation of the FIMA mechanism to the Foreign Currency Subcommittee. The voting members of this committee include Waller (FOMC Chair), Williams (FOMC Vice Chair and President of the New York Fed), and Jefferson (Vice Chair of the Federal Reserve Board). The committee can convene meetings as needed without releasing minutes or voting records, and the outside world can only know the results of their decisions.

So, will this committee take orders from Basant? The answer is absolutely yes.

Trump and Waller communicate frequently, and given that Basant has clearly articulated how to reshape the global economic balance by adjusting the USD/JPY exchange rate, Trump is clearly fully supportive of this. Therefore, Trump and Basant will convey instructions to Waller. Waller has previously proven himself to be a slippery and blustering "paper tiger." Under Williams' management at the New York Fed, the Federal Reserve's balance sheet continues to expand through RMP.

Waller has claimed that he listens to market opinions when formulating policies, and the market clearly demands interest rate hikes, as the two-year Treasury yield is more than 0.5% higher than the effective federal funds rate, yet Waller refused to raise rates at the July meeting. Waller did not immediately implement thorough and drastic reforms to the Federal Reserve's operations but instead established five special working groups to study how and why the Federal Reserve should change. It is feared that by the time these working groups propose any recommendations, "Godot" will have already arrived.

(Odaily Note: The reference comes from "Waiting for Godot," and Arthur Hayes is mocking the efficiency of the five working groups.)

Thus, Waller has quickly proven that he is just another obedient party politician who will only act according to his boss's wishes. This is similar to his predecessor, the spineless "softie" Powell, and even earlier, the "garden gnome grandma" Yellen (who has turned into a "bad girl" after being promoted to Treasury Secretary).

The difference between the two-year Treasury yield and the effective federal funds rate

I do not know when Waller will convene the subcommittee to announce adjustments to the FIMA mechanism, allowing for unrestricted money printing to manipulate the USD/JPY exchange rate lower, but I am sure it will happen. In fact, I bet it will happen, and I am continuously increasing my investment exposure to assets that can reflect the impact of the Federal Reserve's balance sheet expanding massively again. These assets include Bitcoin, physical gold, and stocks of gold miners.

The Implementation of Plan Three Will Drive Up Bitcoin Prices

As long as the Federal Reserve prints more money, the price of Bitcoin will rise. So, will this FIMA trick be enough to become a massive "pump," injecting trillions of dollars to boost the prices of the assets we hold?

Currently, we are only focusing on Treasury holdings because Treasuries are the only assets eligible as collateral under the FIMA. The two entities holding the largest amounts of Treasuries are the Japanese government and GPIF. The Japanese government holds $1.143 trillion in U.S. Treasuries, and GPIF holds $230 billion, totaling $1.373 trillion.

This is a considerable amount. To put this scale into perspective, we can refer to the situation during the COVID-19 pandemic, when the Federal Reserve issued about $4 trillion in currency, evident from the expansion of its balance sheet between 2020 and the end of 2021.

There is a very clear correlation between the growth of the Federal Reserve's balance sheet (white curve) and the surge in Bitcoin prices (gold curve). In previous articles, I speculated that the construction in the AI field is entering a phase of capital waste. This conclusion is crucial because the Trump administration hopes that this liquidity can be used to drive domestic AI capital expenditures in the U.S., rather than inflating cryptocurrency prices.

However, I believe that providing credit to AI companies that cannot achieve positive capital returns (whether they are large-scale cloud service providers that have invested heavily but cannot truly profit, or American AI labs that cannot profit according to "Chinese market token prices") is essentially a waste; and the rise in Bitcoin prices reflects this non-productive use of capital.

Recently, gold prices have rebounded significantly from a temporary low, sending us a signal: the market prefers to direct the impending flood of dollar liquidity into monetary financial assets rather than giving money to the "money-burning machine" OpenAI or Musk's elusive space data centers.

The Altcoin Frenzy is About to Arrive, Expecting 5x Returns on ENA

I know you all want to know what we are specifically doing at Maelstrom, but to build investment conviction, you must first understand the macro context.

As I mentioned earlier, when Basant speaks, I listen intently. If he has any special skills, it is currency manipulation. Just Google his illustrious history working with Soros, and you will understand. Implementing such monetary "tricks" does not require the approval of elected politicians or the nod of those whose terms are about to end and face Senate confirmation hearings. Just convene that usually sleepy "Foreign Exchange Subcommittee" to modify the rules of the game, and it can trigger a surge in dollar printing.

When I saw news about Basant calling for reforms to the FIMA mechanism, I immediately had a bullish intuition. Every macro analyst I follow believes this indicates a significant turning point in the USD/JPY exchange rate. You must position yourself in advance because this time they are serious.

Money printing is a political decision made to address unsustainable economic realities. Politics is always complex, but in the current situation, the intention of the Trump administration is clear: they want you to log into your brokerage account and buy financial assets. That is why Basant has clearly signaled to everyone willing to listen where the printed money will start to spread. I am listening, and I will fulfill my "duty"------ Buy in.

We already hold a large amount of Bitcoin, so the next question is who else will perform better?

While this is not an AI stock recommendation article, if you are interested in that stuff, feel free to bottom-fish. The "Leopold low" has already provided you with an excellent entry point for AI-related assets. Speaking of cryptocurrencies, the yet-to-explode large-cap potential stock is ETH, which is the only mainstream coin that failed to break its historical high in the 2025 market; moreover, Ethereum will become the security layer for RWA assets.

Next, let me introduce a low-point altcoin, Ethena (ENA), which is expected to easily achieve a 5 to 10 times increase.

One issue with Ethena is the lack of a buyback mechanism, but considering it is currently the sixth-ranked dollar stablecoin by circulation, this can be overlooked. The issue with ENA is that due to the drop in coin prices, the Bitcoin basis yield has disappeared, and the yield on holding USDe is barely higher than that of U.S. Treasuries. It is simply not worth taking on counterparty risks from centralized exchanges and smart contract risks to hold staked USDe.

For this reason, its circulating supply has decreased by 75% from its peak, and the price of ENA tokens has dropped by over 90%. However, even a slight increase in dollar liquidity in the future could drive up Bitcoin prices, thereby increasing basis yields and leading to a significant inflow of funds into USDe. ENA does not require many conditions to break free from its slump, so in the coming months, it may be a "speculative" choice worth considering for a quick 5x return.

I have not yet fired all my bullets; we must wait for Waller to convene the subcommittee and modify the FIMA rules. Stay tuned, as this could happen suddenly when no one is paying attention. However, gold and the USD/JPY exchange rate should start to fluctuate before the policy announcement, as those closely related to the Trump administration are likely to position themselves ahead of the news release. This situation is not uncommon in other asset classes, and gold and the foreign exchange market are no exception.

In summary, the days of the "cheap" yen are coming to an end.

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