Bitcoin comes into focus as the Japanese Yen surges: What's next?

The stability of a major global currency is under threat, and the ripple effects of this development are directly impacting Bitcoin, at least in the short term.

According to Bloomberg, the market is paying close attention to the possibility of the US Federal Reserve (Fed) coordinating monetary intervention. After the New York Fed conducted a “rate check” — a routine procedural step often seen before market actions — the Japanese yen surged 3.39% from last Friday’s low. The current exchange rate stands at 153.95 yen/USD, a level not seen since early November 2025.

This development is particularly significant because a strengthening yen could reverse one of the most popular investment strategies worldwide, thereby directly affecting liquidity flows that have supported risky assets like Bitcoin for many years.

The volatility follows a week of instability in Japan, when a sharp sell-off pushed the 40-year government bond yield to 4% — the highest since its initial issuance in 2007.

In this fragile macroeconomic environment, Bitcoin’s movements are increasingly influenced by capital flows from traditional finance. The asset has hardly gained ground amid policy and geopolitical changes, increasing only 0.14% year-to-date, while gold and silver continue to hit new highs.

Global carry trade reversal risk

For decades, near-zero interest rates in Japan have fueled the “carry trade” strategy, where investors borrow yen at low cost to invest in higher-yield assets abroad, including US stocks and Bitcoin.

When the yen weakens, these positions become more profitable on paper. However, if a coordinated intervention occurs to strengthen the yen — for example, the Fed selling USD to buy yen — the market will be forced to reverse quickly.

According to Tim Sun, senior researcher at HashKey Group, Bitcoin’s short-term price is mainly driven by leveraged capital flows. When the yen appreciates, investors are forced to sell risky assets to buy yen and repay loans, creating widespread selling pressure.

Expectations of increased intervention also cause “volatility premium” to rise sharply, increasing the cost of maintaining leveraged positions and prompting capital to withdraw from Bitcoin.

Concerns about the Fed New York’s “rate check” are raising the possibility of a coordinated intervention campaign, potentially including expanding USD liquidity to buy yen, to support the Japanese currency. This mechanism partly explains recent selling pressure across both crypto and stock markets as the yen recovers.

The consequences could be significant. Forcing the closure of leveraged positions may continue to shake the bond markets and global liquidity, similar to the carry trade shock in August 2024, which pushed Bitcoin below $50,000 and caused over $1 billion in liquidations. However, Sun believes the impact this time is unlikely to surpass the events of 2024, as risk appetite among leveraged investors has become more cautious.

Short-term pressure, long-term motivation

This deleveraging process clearly poses a short-term risk to Bitcoin’s price. However, in the long run, the monetary effects of such an intervention could be strongly supportive.

If the Fed sells USD to intervene, it effectively expands USD liquidity — a form of monetary easing. A weaker USD would boost global liquidity, especially since the dollar has already been near multi-month lows.

According to Sun, for a new sustainable rally to form, the market needs to see a decline in yen exchange rate volatility followed by a clear weakening of the USD, confirming a structural shift toward a more abundant liquidity environment. Historically, such a scenario has often served as a catalyst for “hard money” assets like Bitcoin.

Arthur Hayes, former CEO of BitMEX and an influential macro commentator, describes this scenario as “extremely bullish.” He states that if the Fed actually prints more USD, creates bank reserves, and then sells USD to buy yen, the Fed’s balance sheet will expand through foreign currency assets — data published weekly in the H.4.1 report.

This view is increasingly gaining market attention: the short-term shock from a carry trade reversal could soon give way to a strong capital allocation wave into Bitcoin, as investors seek hedges against deliberate USD dilution. However, before this shift occurs, downward pressure is likely to persist.

According to Sun, until the yen stabilizes and the risks of intervention are fully priced in, global risk appetite will continue to contract, and Bitcoin will face significant downward pressure.