Yen Reaches Highest Level Against Dollar Since February, Bitcoin Watches

Six weeks. That's how long it took for the yen to go from being a zombie currency to a star in the trading rooms. At the end of July, the Japanese currency was flirting with its lowest levels in forty years against the dollar. On Monday, September 7, it climbed to 154 yen per dollar, its highest level since February. A rare and brutal turnaround that rekindles a well-known concern among readers of Journal du Coin: the carry trade (borrowing in yen at nearly zero rates to invest elsewhere) unwinding in haste. Key points of this article: * The yen has experienced an extraordinary turnaround, going from weak currency to a star in a short time. * Expectations of a rate hike by the Bank of Japan fueled this yen rally, causing nervous reactions in the markets. The yen is proving all short sellers wrong. Let's rewind. On July 29, the dollar peaked at 163.9 yen. Tokyo and Washington then brought out the heavy artillery: a joint intervention in the foreign exchange market, confirmed by U.S. Treasury Secretary Scott Bessent, who promised not to hesitate to participate in further joint interventions in case of disorderly movements. The greenback fell back to around 156.5 yen that day. And it has not stopped declining since. At the beginning of September, the acceleration surprised everyone. On Wednesday, the yen gained 0.9% against the dollar. The next day, another 1%. This Monday, the USD/JPY pair hit 154 yen, a six-month low for the greenback. This has made nervous the funds that have bet for years on an eternally weak yen: the rise catches them off guard. The Bank of Japan, an unwitting arbiter of the yen's comeback. The real fuel for this rally is not so mysterious. Markets have revised their expectations for the Bank of Japan upward. Takuji Aida, economic advisor to Prime Minister Sanae Takaichi and chief economist at Crédit Agricole, stated on Monday, September 7, that the institution will likely raise its rates at its meeting on September 17 and 18. It would then continue at a pace of one hike every three months until January 2027, before returning to a semi-annual pace, according to remarks reported by Reuters. Aida himself warns that this accelerated pace would weigh on the Japanese economy. The paradox is striking. Takaichi herself is known for her accommodative stance: she is pushing for a two-year suspension of the 8% tax on food products, financed by credit. Her own advisor, however, is betting on monetary tightening, just before an extraordinary parliamentary session in October where this tax suspension is to be debated. Bitcoin rides the yen, but the balance remains precarious. For crypto players, the story has a déjà vu flavor. In August 2024, a surprise hike by the Bank of Japan was enough to melt the price of bitcoin from $62,000 to $49,000 in a few days, as positions financed in zero-rate yen unwound in panic. According to CoinDesk, the correlation between bitcoin and the dollar/yen pair even reached -0.90 over the past twelve months, a figure that mainly reveals BTC's sensitivity to the dollar rather than to the yen itself. For now, the scenario is not repeating. At the beginning of September, bitcoin was trading around $80,000, buoyed by the general weakening of the greenback rather than weighed down by it. Gold was rising in the same movement. But the mechanics remain fragile. A more brutal rate hike than expected on September 18 could force many funds to suddenly unwind their bets financed in cheap yen, including cryptos. The real test arrives in ten days. Markets have already almost priced in a 25 basis point (0.25 percentage point) hike, which would bring the Japanese benchmark rate to 1.25%. The decision comes at a bad time for Takaichi, just weeks before a parliamentary debate where she must defend her suspension of the food tax, financed by credit. The last time the Bank of Japan surprised the market, bitcoin lost 20% in a few days. Enough to hesitate before reopening leveraged positions built on cheap yen.

This content is provided for general informational purposes only and doesn't constitute financial, investment, legal, or tax advice. Any events, rewards, online promotions, or related information mentioned herein should not be considered a recommendation, solicitation, or invitation to purchase, sell, trade, or otherwise deal in any crypto assets. Crypto assets are highly volatile and may result in loss. The availability of WEEX services, products, and related events may vary by region. You are responsible for ensuring that your participation is in accordance with applicable local laws and regulations.