Coordinated action sent the yen sharply higher, but bitcoin’s recent correlation suggests U.S. dollar strength, rather than the carry trade, may be the bigger risk.
U.S. Treasury Secretary Scott Bessent confirmed Sunday that the U.S. joined Japan in coordinated foreign exchange intervention last Friday, calling it a move to counter “disorderly yen movements.” The USD/JPY pair almost hit 164 its weakest level since 1986 before snapping back to 156.5 on Monday.
“We will not hesitate to participate in further joint intervention,” Bessent wrote on X, adding that the U.S. “strongly supports Japan’s decisive market and monetary steps to correct the substantial undervaluation of the yen.”
For the crypto market, August 2024 marked a bloodbath caused by the unwind of the yen carry trade. When the Bank of Japan (BOJ) hiked interest rates to 0.25% unexpectedly that month, the yen strengthened, and BTC collapsed from roughly $62,000 to $49,000 in a week, roughly a 20% drawdown, as leveraged carry investors sold risk assets to cover yen-denominated losses.
The BOJ held rates at 1% last week, while Governor Kazuo Ueda’s flagged AI demand and yen weakness as the two factors pushing inflation above 2%.
Different this time?
However, with everyone expecting bitcoin to fall alongside a strong yen, CoinDesk analysis shows the opposite. Bitcoin’s 52-week rolling correlation with USD/JPY had hit -0.90, suggesting BTC was actually falling alongside a weakening yen, which is the opposite of carry-trade logic. Analysis shows it was more likely broad U.S. dollar strength, not the yen.
Japanese bond yields are still surging regardless of the announcement, with the 30-year yield approaching 4%, while bitcoin has remained relatively flat above $63,000.
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