Extending that logic, a strengthening yen should trigger risk aversion in both stocks and cryptocurrencies. That’s precisely what happened in July/August 2024, when the Bank of Japan (BOJ) raised interest rates, sending the yen sharply higher. Risk assets had a meltdown, with BTC falling to $50,000 from $65,000 in the following weeks.
Driven by the Fed
Carry-trade unwind fears have resurfaced lately as the yen slid, hitting four-decade lows this week. That’s raised expectations of more aggressive action by the BOJ to stem the slide.
However, if the latest correlation is anything to go by, any BOJ action and a resulting rise in the yen could actually cut off bitcoin’s decline, the opposite of what carry-trade logic would predict.
Correlation doesn’t necessarily mean causation, even though statisticians often use the phrase “explained by” to describe the relationship.
In fact, it’s likely neither bitcoin nor the yen is driving the other directly. Instead, broad dollar strength or weakness may be moving both assets independently, creating the appearance of a tight BTC-yen relationship.
Markets have recently priced in at least one 25 basis-point interest rate increase by the Fed this year. That hawkish repricing, a sharp reversal from earlier hopes of rate cuts, has lifted the dollar against a range of currencies including the euro, Australian dollar and New Zealand dollar as well as gold and silver.
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