Under the “yen carry trade” framework, a weak yen (USD/JPY rising) is supposed to be accompanied by rising BTC, just as it tends to support stocks. Extending that logic, a strengthening yen should trigger risk aversion in both stocks and cryptocurrencies.
This is exactly what happened in late July/early August 2024 when the Bank of Japan raised interest rates, sending the yen sharply higher. Risk assets had a meltdown, with BTC falling from around $65,000 to $50,000 in the following weeks.
Fears of holding back have resurfaced recently as the yen continues to slide, hitting four-decade lows this week. That has raised hopes for more aggressive action by the BOJ to stem the yen’s decline.
However, if the recent correlation is anything to go by, potential BOJ action and a resulting rise in the yen could actually put a floor under BTC that works the opposite way of what carry-trade logic would predict.
A mirage?
Correlation does not necessarily mean causation.
Neither BTC nor the Yen may directly drive the other. Instead, broad US dollar strength or weakness can move both assets independently, creating the appearance of a tight BTC-yen relationship.
That reading makes sense in context: Markets have recently priced in at least one 25-basis-point rate hike from the Fed this year. This hawkish price adjustment, a sharp reversal from earlier hopes for interest rate cuts, has broadly lifted the dollar. The euro, the Australian dollar, the New Zealand dollar, gold and silver have all fallen against the dollar over the same stretch.
