In the yen carry trade, a weak yen (rising USD/JPY) is supposed to be accompanied by a rise in BTC, just as it tends to support stocks. Extending this logic, a strengthening of the yen should trigger risk aversion in both stocks and cryptocurrencies.
This is precisely what happened in late July/early August 2024, when the Bank of Japan raised interest rates, sending the yen sharply higher. Risk assets collapsed, with BTC falling from around $65,000 to $50,000 over the following weeks.
Fears of carry unwinding have resurfaced recently as the yen continues to fall, hitting a four-decade low this week. This raises hopes for more aggressive action by the BoJ to stem the fall of the yen.
However, if the latest correlation is to be believed, potential BOJ action and a resulting rise in the yen could actually put a floor on BTC, the opposite of what carry-trade logic would predict.
A mirage?
Correlation does not necessarily mean causation.
Neither BTC nor the yen can directly influence the other. Instead, general strength or weakness in the U.S. dollar can cause the two assets to move independently, creating the appearance of a close BTC-yen relationship.
This reading makes sense in context: Markets have recently priced in at least a 25 basis point interest rate hike from the Fed this year. This hawkish revaluation, a sharp reversal from earlier hopes for rate cuts, has driven the dollar higher overall. The Euro, Australian Dollar, New Zealand Dollar, Gold and Silver have all fallen against the Greenback over the same period.
