The Japanese yen is on the brink of a historic collapse: what this means for the crypto market
The Japanese yen has come close to the critical level of 161 against the dollar, putting it on the verge of renewing a 40-year low recorded back in 1986. Neither monetary policy tightening nor large-scale currency interventions by Tokyo can stop the prolonged decline of the national currency. This creates a unique and extremely tense situation for global markets, and cryptocurrencies are no exception.
Why is the yen continuing to fall?
The key reason is the colossal interest rate gap between Japan and the US. The recent rate hike by the Bank of Japan to 1%—the highest level since 1995—has proven to be both belated and insufficient. Inflation, fueled by expensive raw materials, continues to rise, but the regulator is acting with extreme caution. The reason is the giant national debt, many times exceeding the country's GDP. A sharp rate hike would make servicing it unsustainable. At the same time, the US Federal Reserve maintains a high rate, and the US dollar is steadily strengthening. In May, Tokyo spent about $73.5 billion on interventions, but the yen quickly returned to its decline, proving the futility of such measures.
Direct impact on cryptocurrencies
The main channel of influence is arbitrage trading via "carry trade." Investors take cheap loans in yen, convert them into dollars, and invest in high-yield assets, including tech stocks and cryptocurrencies. Every notable rate hike by the BOJ since 2024 has led to a 20–32% drop in Bitcoin. The last meeting on June 16 also triggered a decline, though more modest—around 1%—due to the overall weakness of the yen and geopolitical factors.
Systemic risk and inevitable reckoning
As long as the yen steadily weakens and the regulator hesitates, arbitrage trading continues to fuel markets, creating an illusion of stability. However, the longer this imbalance accumulates, the more devastating the inevitable collapse will be. A sharp strengthening of the yen or a sudden tightening of BOJ policy will trigger a forced closure of short positions (short squeeze), causing a panic sell-off across the board. In August 2024, we already witnessed something similar: Bitcoin crashed along with stock indices.
My expert opinion: The current situation is a ticking time bomb for risky assets. Cryptocurrency investors should prepare for extreme volatility. As long as carry trade remains profitable, the market will receive support, but any sharp reversal of the yen could become a trigger for a large-scale correction comparable to the events of 2024. Diversification and hedging are not just a recommendation but a necessity.