This is perhaps a coincidence, but the recent drop in Nasdaq and Bitcoin (BTC) coincides with a strong increase in bond yields from the Japanese government and the strengthening of the Japanese Yen (JPY) in complete safety, recalling the dynamics of the market observed in early August.
There could be a causality here because, for decades, the low -efficiency yen supported the prices of world assets. The continuous increase in Japanese Yen may have contributed to the recent risk aversion to Wall Street and on the cryptography market.
That said, the bullish positioning in the Japanese yen seems overestimated, speculators having long longs last week, according to CFTC data followed by Macromicro. Such an extremely bullish positioning, representing a collective belief in a continuous movement higher in the assets, opens the land for the disappointment, depending on, that a mass takes place, leaving, leading to a rapidly lowered backward reversal.
In other words, the rise of the yen could be triggered for the moment, offering relief of risky assets, including Nasdaq and Bitcoin.
“We are now cautious to pursue a greater force by JPY, given the speculative positioning stretched as well as for a strong purchasing appetite for diving in the national community,” a note told customers of customers on Friday.
The strategists have explained that many Japanese investors use the Japanese program individual (NISA) to take foreign assets during the risk, inadvertently slowing down the rhythm of the JPY appreciation. In addition, the public pension system tends to go against the trend, rebalancing JPY assets.
“Indeed, such a scenario occurred last August after a strong appreciation of the JPY and the sale pronounced in shares,” noted the strategists.
Let us see if history is repeated, triggering a feeling of renewed risk for the Nasdaq and Bitcoin. The USD / JPY pair presented itself after the slide in July and early August at 140, finally reached 158.50 in January. BTC has also proved to be the crash from early August to $ 50,000, moving to new records greater than $ 108,000 in January.
At the time of the press, Bitcoin exchanged nearly $ 80,300, which represents a drop in the date of almost 5%, extending the slide by 17.6% of February. At one point on Tuesday, prices dropped to $ 76,800, according to Coindesk data.
Meanwhile, the USD / JPY exchanged 147.23, having made a five -month lower of 145.53 Tuesday, according to tradingView data.
Temporary respite?
While the positioning of the stretched bull and institutional flows suggest relief in advance, these factors can do little to modify the larger optimistic perspectives for JPY, which is supported by an American-Japanese liaison differential.
Thus, risky bulls must be vigilant for signs of volatility in the yen and wider financial markets.
The graph shows the propagation between yields on US government’s obligations at 10 and Japanese.
The spread has shrunk 2.68% in a positive JPY, reaching the lowest since August 2022. More, it threw a macro trend, suggesting a major bull change in the prospects of JPY.
