Bitcoin Faces Pressure as Japanese Yen Strengthens

Bitcoin and Yen: A Shift in the Financial Landscape

Bitcoin (BTC) has been on the back foot recently as the Japanese yen (JPY) has seen a notable appreciation in the foreign exchange market. This shift follows the Bank of Japan (BoJ)‘s recent decision to raise its interest rates and implement additional measures aimed at tightening liquidity.

In a decisive hawkish maneuver, the BoJ increased its unsecured overnight call rate target to approximately 0.25%, up from the previous range of 0%-0.1%. Furthermore, the central bank announced plans to reduce its liquidity-boosting bond purchases to around 3 trillion yen (approximately $20 billion) per month by the first quarter of 2026, a significant drop from the 6 trillion yen it was purchasing monthly as of March.

As a result, Bitcoin has been trading steadily around $66,000, reflecting a weekly decline of 2%. This downturn has been influenced by expectations of renewed rate cuts from the U.S. Federal Reserve, which has driven demand for the so-called “anti-risk” yen. Consequently, the USD/JPY exchange rate has plunged to nearly 150, marking the yen’s strongest position since March, according to data sourced from TradingView. In tandem, futures linked to the S&P 500 Index have risen by 0.4%, indicating a potentially positive market open on Wednesday.

Traders often utilize the low-yielding Japanese yen to finance investments in higher-yielding assets. As such, a significant appreciation of the yen tends to put pressure on so-called carry trades, compelling investors to reduce their exposure to riskier assets, including cryptocurrencies. BlackRock noted in its weekly report, “The yen’s popularity as a funding currency can cause knock-on effects in other markets, helping to tighten global financial conditions.” They further elaborated that the yen’s surge has prompted investors to unwind positions that leveraged the low-yielding yen to acquire higher-yielding currencies—an activity commonly referred to as the carry trade.

This month, the yen has experienced a remarkable rally of nearly 6.4% against the dollar, representing its most substantial gain since November 2022. This surge may contribute to the prevailing risk aversion observed in technology stocks and the repeated bearish exhaustion of Bitcoin’s price near the $70,000 mark.

Looking ahead, the yen could continue to strengthen, exacerbating risk aversion, particularly if the Fed delivers a strong dovish signal later on Wednesday, setting the stage for a series of rapid rate cuts.