The yen is on the brink of an all-time low: a hidden threat to bitcoin and the entire crypto market
The Japanese yen has closely approached the psychologically important level of 161 per dollar, putting it on the verge of updating the 40-year low recorded back in 1986. The current dynamics show a striking resilience to any measures: neither the tightening of monetary policy by the Bank of Japan nor Tokyo's record currency interventions can stop the prolonged decline of the national currency.
Why Traditional Methods No Longer Work
The key reason for such a massive weakening of the yen is the colossal interest rate gap between Japan and the United States. Despite the recent rate hike by the Bank of Japan to 1% (the highest level since 1995), the U.S. regulator maintains high rates and does not rule out additional tightening. The yield differential continues to fuel massive carry trade: investors take cheap loans in yen, convert them into dollars, and invest in high-yield assets, including tech stocks and cryptocurrencies.
A telling example of the regulator's helplessness is the May interventions totaling about $73.5 billion. Infusions of this magnitude only provided a short-term rebound in the exchange rate, after which the yen resumed its decline. The problem is compounded by Japan's colossal government debt, which is many times larger than the country's GDP: a sharp increase in rates would make its servicing unsustainable for the budget.
Direct Impact on the Crypto Market
The link between the yen's weakness and the digital asset market is traced through the carry trade mechanism. As long as the Japanese currency steadily depreciates and the Bank of Japan hesitates to take decisive action, arbitrage trading continues to fuel risky assets. Each previous rate hike by the regulator in 2024 resulted in a deep drawdown of 20–32% for Bitcoin. The June meeting also triggered a decline, but it was contained thanks to the overall weakness of the yen and geopolitical factors—the drop was just over 1%.
However, within this local resilience lies the main systemic risk. The longer the imbalance accumulates, the more devastating the inevitable crash will be. A sharp strengthening of the yen or a sudden acceleration in the central bank's pace will trigger forced short position closures—a massive unwinding of carry trade. A similar scenario in August 2024 already caused panic selling on exchanges, when Bitcoin fell sharply along with stock indices.
My expertise: The current situation resembles a drawn bowstring—the longer the market enjoys cheap liquidity from Japan, the more painful the snap will be. Cryptocurrency investors should prepare for a scenario where a sharp reversal of the yen triggers a synchronized crash in both digital and traditional risky assets. This is not a question of "if," but "when."