It is pointed out that investors in the cryptocurrency market should closely follow not only the Fed’s policies but also interest rate and yen movements in Japan. EasyA co-founder Dom Kwok assessed why the Japanese yen is important for global markets and especially for risky assets like Bitcoin and altcoins.
According to Kwok, Japan’s interest rates, which remained near zero or even negative for many years, created a significant source of cheap liquidity for global investors. Investors borrowed yen at low interest rates, converted these funds into other currencies such as the dollar, and then invested them in assets with higher return potential, such as stocks, bonds, and cryptocurrencies.
This strategy, known in the markets as the “yen carry trade,” has facilitated a significant influx of cheap capital into global markets while simultaneously driving up the prices of risky assets.
“Decreased Profitability of Carry Trader Operations Could Negatively Impact Risky Assets Like Cryptocurrencies”
Kwok noted that the weak yen makes carry trades more attractive, which can support the flow of liquidity into the cryptocurrency market. Conversely, a strengthening yen and rising interest rates in Japan can reduce the profitability of such trades.
In such a scenario, investors may need to reduce their positions to pay off their yen-denominated debt. This process of selling risky assets like stocks and cryptocurrencies can create strong selling pressure on Bitcoin and altcoins.
Kwok cited the events of August 2024 as an example. After the Bank of Japan (BOJ) raised its interest rate to 0.25%, the yen rapidly appreciated, carry trade positions unwinded, and volatility in global markets increased significantly. The cryptocurrency market was also negatively affected by the global risk aversion movement during this period.
*This is not investment advice.
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