Strong yen weakens dollar index, boosting Bitcoin and gold

ChainCatcher report: The Japanese yen has recently strengthened significantly against the U.S. dollar, with USD/JPY falling 1.4% to 156.4, following a 0.9% decline on Wednesday. The U.S. Dollar Index (DXY) subsequently dropped 0.4% to 99.22, testing its 200-day moving average near 99.1. Against this backdrop, Bitcoin and gold have both risen in tandem, contradicting the traditional view that a stronger yen typically triggers risk-off selling. Analysis suggests that the yen’s strength benefits Bitcoin primarily by pressuring the U.S. Dollar Index; a weaker dollar generally supports dollar-denominated assets and eases global financial conditions. However, if the yen’s rally accelerates, this dynamic could reverse rapidly. Over the past decade, traders have extensively borrowed low-cost yen to fund bullish bets on stocks, bonds, and even cryptocurrencies; a disorderly yen appreciation could trigger unwinding of these positions, sparking risk aversion. A rapid yen appreciation previously pressured Bitcoin—most notably in August 2024 during the unwinding of yen carry trades, when Bitcoin fell approximately 20% over several days. Currently, traders are increasing bets that the Bank of Japan will raise its policy rate from 1% to 1.25% at its September 18 meeting, and reports indicate prior intervention by U.S. and Japanese authorities to support the yen, leaving little resistance to further yen strength.