Bitcoin Drops 15% Against Japanese Yen, Outpacing Declines Versus USD, as Yen Carry Trades Unwind

Bitcoin’s yen-based price on Tokyo-based bitFlyer exchange fell about 15 percent, significantly more than its dollar-based price on Western exchanges.

The sharp appreciation of the yen following Japan’s 0.25 percent interest rate hike was effective in this development.

The yen’s strong performance against the US dollar, rising by nearly 10 percent in three weeks, led to a pullback in carry trades, triggering a sell-off in risky assets, especially Bitcoin.

Bitcoin’s {{BTC}} yen price fell nearly 15% on Tokyo-based bitFlyer exchange, posting bigger losses than its dollar-denominated price fell 11% on Western exchanges.

Trading volume on bitFlyer increased by 241% in 24 hours, exceeding $220 million, according to Coingecko.

The steeper decline in yen was due to a sharp appreciation of the Japanese currency in foreign exchange markets. Japan raised interest rates by 0.25% last week, leading to a stronger yen and a corresponding decline in riskier assets including bitcoin.

The decline deepened after Tokyo opened on Monday, with markets across Asia closing the day with losses. Japan’s Topix 100 index posted its worst session since 2011, with the Nikkei 225 down 12.4%. Meanwhile, crypto futures traders saw their worst day since March, with liquidations in crypto-tracking futures exceeding the $1 billion mark in the past 24 hours.

The Japanese currency has gained nearly 10 percent against the U.S. dollar in three weeks, a stunning gain for the world’s third-largest reserve currency and the currency of choice for investors worldwide to fund risky asset purchases.

(bitFlyer)

The Bank of Japan raised interest rates last week, boosting the yen’s appeal and triggering an end to carry trading. Some say that contributed to a sell-off in riskier assets. A carry is a trading strategy that involves borrowing an asset or currency with a low interest rate, such as the yen, and investing in an asset that offers a higher rate of return.

“The pullback of the carry trade is symptomatic of a pullback in popular macro trades as we see multi-sigma moves across asset classes and hedge funds are forced to pull back on their positions for PNL protection,” Augustine Fan, head of insights at SOFA.org, told CoinDesk in a Telegram message.

“Japan has been a source of PNL income from USDJPY and Nikkei long positions, so the disappearance of these major sources could indicate that risk perception and risk appetite are very low in the coming period,” Fan added.

The sharp rise in JPY/USD is causing a large pullback in Yen carry trade positions and contributing to the sharp decline in US stocks. For those who don’t understand how this works, here’s a quick explanation

1) Many traders were borrowing Japanese Yen (JPY) at low interest rates. picture.twitter.com/sfi0Hva56M

— Adam Khoo (@adamkhootrader) August 5, 2024

However, some remain optimistic and suggest that the market could make a local bottom in the coming days.

The story continues

“The recent pullback was driven by broader market tightening in Japan’s economic policies, where the central bank’s hawkish stance has led to a surprising hike in interest rates,” Lucy Hu, senior analyst at Metalpha, explained in a Telegram message. “Belowering macro data in the US has investors worried about a possible recession.”

“However, despite the lack of official confirmation that the Fed will cut interest rates in September, the market has priced in this event and we should expect a recovery in BTC price once the macro environment improves,” Hu added.