The yen’s sharp advance is weighing on the U.S. dollar, creating a favorable backdrop for bitcoin and gold — at least for the moment.
The market is seeing an unusual mix of moves, with the Japanese currency strengthening while both BTC and gold are also climbing. That runs counter to the usual assumption that yen strength reflects a broader shift toward risk-off positioning. In this case, the key link appears to be the yen’s effect on the dollar.
USD/JPY has fallen 1.4% to 156.40, following a 0.9% decline on Wednesday, according to TradingView. Because the pair is among the most actively traded in global currency markets, such a move can have a meaningful impact on the broader dollar. Other major currency pairs are reflecting that pressure, with EUR/USD, GBP/USD and AUD/USD all edging higher.
The Dollar Index has consequently slipped 0.4% to 99.22 and is approaching its 200-day moving average, a key long-term trend indicator followed by traders worldwide.
If the DXY moves decisively below that level, dollar selling could intensify. The 200-day average is closely watched, meaning a break could attract additional selling as traders react to the same technical signal.
A weaker dollar generally benefits assets priced in U.S. dollars, including bitcoin. It can also loosen global financial conditions, potentially encouraging investors and businesses to take on more risk. The opposite tends to occur when the dollar strengthens, making a rising greenback a traditional headwind for BTC.
A Stronger Yen Could Become a Problem
For now, yen appreciation is helping push the DXY lower and giving bitcoin and gold room to advance. But that relationship could quickly change if the yen’s gains become too aggressive.
Investors have spent more than a decade using inexpensive yen financing to build bullish positions in stocks, bonds and cryptocurrencies. A disorderly yen rally could force some of those trades to be unwound.
Foreign investors who bought Japanese equities while benefiting from a weak yen could sell their positions, while Japanese investors who used cheap yen to purchase overseas assets could also reduce exposure. Both flows could increase demand for safer assets and trigger a broader risk-off move.
Bitcoin saw the potential consequences in August 2024, when the unwinding of the yen carry trade coincided with a roughly 20% decline in BTC within days.
Whether the current yen rally remains orderly or turns more disruptive is unclear. Still, markets are increasingly pricing in further yen strength, with traders assigning higher odds to the Bank of Japan raising its policy rate from 1% to 1.25% at its Sept. 18 meeting.
Authorities also appear willing to support a stronger yen. Earlier in August, the U.S. and Japan reportedly intervened to address what they called “disorderly yen movements” and to help support the currency.
