Bitcoin Plummets 15% as Yen Strengthens Amid Interest Rate Hike

Bitcoin Faces Significant Decline Amid Yen Appreciation

Bitcoin’s (BTC) value experienced a dramatic plunge of nearly 15% on the Tokyo-based bitFlyer exchange, outpacing the 11% drop observed in its dollar-denominated price on Western exchanges. This stark contrast highlights the influence of currency fluctuations on cryptocurrency valuations.

Trading activity on bitFlyer surged by an impressive 241% within a 24-hour period, surpassing the $220 million threshold, as reported by Coingecko. The pronounced decrease in yen terms can be attributed to the recent appreciation of the Japanese yen in global foreign exchange markets.

Last week, Japan’s central bank raised interest rates by 0.25%, which bolstered the yen’s value and resulted in a corresponding decline in various risky assets, including Bitcoin. This downturn intensified following the opening of markets in Tokyo on Monday, with several Asian exchanges concluding the day in the red.

• Japan’s Topix 100 index recorded its worst performance since 2011.
• The Nikkei 225 index fell by 12.4%.
• Crypto futures traders faced their most challenging day since March, with liquidations on crypto-linked futures exceeding $1 billion in the last 24 hours.

In the past three weeks, the Japanese yen has surged nearly 10% against the U.S. dollar, marking a remarkable increase for the world’s third-largest reserve currency, which is often favored by traders for financing risk asset purchases.

The recent shift in Japan’s monetary policy, particularly the interest rate hike, has made the yen more appealing to investors and prompted a significant unwinding of carry trades—trading strategies that involve borrowing currencies at lower interest rates, such as the yen, to invest in higher-yielding assets. This unwinding has been seen as a contributing factor to the widespread sell-off in risk assets.

Augustine Fan, head of insights at SOFA.org, commented, “The unwinding of the carry trade is more a symptom of popular macro trades being taken off, as we have seen multi-sigma moves across asset classes. Hedge funds are being compelled to unwind positions for profit and loss (PNL) protection.” He further noted that “Japan has been a key source of PNL income from long positions in USDJPY and the Nikkei, so the unwinding of these positions suggests a very muted risk sentiment and appetite moving forward.”

Despite the prevailing bearish sentiment, some analysts remain hopeful, suggesting that the market may be nearing a local bottom in the coming days. Lucy Hu, a senior analyst at Metalpha, stated, “The recent pullback is a result of the broader tightening in Japan’s economic policies, particularly the central bank’s unexpected hawkish shift with the interest rate hike.” She added that the “bearish macro data in the U.S. has raised concerns about a potential recession.”

Hu concluded, “While there has been no formal indication of a rate cut by the Federal Reserve in September, the market seems to be anticipating this event. We should expect a rebound in Bitcoin’s price as the macroeconomic environment improves.”