Yen Soars, Dollar Falls: Bitcoin Benefits... But For How Long?

The yen is rising, the dollar is falling, and Bitcoin is benefiting. The Japanese currency has appreciated by about 2.5% over two sessions, leading to a general decline of the greenback. The Dollar Index is now testing an important technical level, while Bitcoin is climbing back towards $79,000 and gold is also making gains. However, this favorable setup conceals a risk. A gradual rise in the yen weakens the dollar and supports assets denominated in that currency. A sudden acceleration could, on the contrary, trigger the unwinding of speculative positions financed in yen and lead to sell-offs in global markets.

The Rise of the Yen Weakens the Dollar and Supports Bitcoin

The USD/JPY pair fell by 1.4% on Thursday, around 156.40 yen per dollar, after a 0.9% drop the day before. Such a movement is significant in one of the most liquid currency markets in the world.

This rise of the yen comes as investors anticipate a new monetary tightening in Japan. Following firmer statements from board member Hajime Takata, markets are increasingly pricing in a rise in the Bank of Japan's key interest rate, from 1% to 1.25%, at its meeting on September 18.

The movement directly affects the Dollar Index, or DXY. The yen accounts for about 13.6% of this index, behind the euro. Its appreciation thus mechanically lowers the value of the dollar against the basket of six currencies tracked by investors.

The DXY fell by 0.4%, to around 99.22 points, and is approaching its 200-day moving average, located around 99.1. A sustained break below this level could encourage new dollar sales, even if this technical indicator does not guarantee it.

For Bitcoin, the effect is currently favorable. A weaker dollar generally supports assets denominated in that currency and tends to ease global financial conditions. Bitcoin has thus climbed back towards $78,800, while gold was also rising in parallel.

This correlation does not mean that the yen alone explains the rise. U.S. rates, flows into ETFs, economic statistics, and investor positioning also remain crucial.

The Carry Trade Can Quickly Reverse the Movement

The support provided by the yen only works if its appreciation remains gradual. A too-rapid rise could have the opposite effect by forcing investors to unwind their carry trade strategies.

The principle involves borrowing low-cost yen to buy assets offering better returns: stocks, foreign bonds, or cryptocurrencies. This strategy has long benefited from the very low rates practiced in Japan and the weakness of its currency.

When the yen rises, the cost of repayment increases for investors exposed to this strategy. If the movement becomes abrupt, they may be forced to quickly sell their assets in order to buy back yen and close their loans. The decline then affects all risky markets, including Bitcoin.

A recent precedent illustrates this danger. In August 2024, the rapid unwinding of the yen carry trade contributed to a drop of about 20% in Bitcoin within a few days.

The market is thus facing a fragile balance. An orderly appreciation of the yen continues to weaken the dollar and support Bitcoin. A disorderly acceleration would turn this support into a threat, triggering liquidations of assets financed by the Japanese currency.

Three indicators will help track this shift: the Dollar Index around its 200-day average, the speed of movement of the USD/JPY pair, and the Bank of Japan's decision on September 18. For now, the yen is accompanying Bitcoin's rise. But if it rises too quickly, it could become the element that interrupts it.