Yen Earthquake: $1.37 Trillion U.S. Treasury Repurchase Could Trigger Bitcoin and Gold Rally

Author: Arthur Hayes (Co-founder of BitMEX)

Compiled by Deep潮 TechFlow

DeepOcean Overview: The yen is preparing for an “earthquake.” Arthur Hayes believes the yen is the most undervalued currency globally, and U.S. and Japanese authorities have already selected their official plan to strengthen the yen: Japan’s Ministry of Finance will pledge its $1.373 trillion in U.S. Treasuries to the Federal Reserve via the FIMA repo facility in exchange for dollars, which it will then use to buy yen in the foreign exchange market. This maneuver involves no asset sales or market disruption, yet effectively amounts to the Fed quietly printing money and expanding its balance sheet. Once implemented, global dollar liquidity will surge again—and historical precedent tells us: Fed balance sheet expansion = Bitcoin and gold rally. Hayes has already taken heavy positions in Bitcoin, gold, and gold mining stocks, and shares his outlook for Ethereum and Ethena (ENA). This article breaks down this overlooked “hidden exchange rate channel” and its true implications for the crypto market.

In early March 2011, I was sitting at a trading desk at Deutsche Bank in the ICC building in Hong Kong, market-making a basket of ETFs listed on the Hong Kong and Singapore stock exchanges. Suddenly, someone shouted across the office: “A massive earthquake has hit Japan.” The office TV switched to live footage from Tokyo; the screen was shaking. Moments later, the news showed a tsunami sweeping across the northeastern coast of Honshu. Fukushima was smoking. The scene was insane.

The Nikkei index plunged nearly 20% intraday. Meanwhile, the USD/JPY pair crashed toward 70, pushing the yen to one of its strongest levels since World War II. I genuinely dislike a strong yen—last winter, I discovered Nozawa Onsen, but at an exchange rate of 80 yen to the dollar, it was outrageously expensive.

The pile of MSCI Japan ETFs I bought, denominated in USD, naturally carries a JPY exposure. The yen surged sharply and rapidly, leaving me no time to hedge my foreign exchange risk. So I decided to just hold onto my long USD/JPY exposure—because traders kept slamming my buy orders, my ETF position grew even larger. A seasoned trader once said: Whenever Japan suffers a natural disaster (and given its location on the Pacific Ring of Fire, it happens more frequently than elsewhere), domestic institutions—especially insurance companies—rush to repatriate their overseas capital. This means selling foreign stocks and bonds, primarily U.S. assets—a point that becomes crucial later: as yen “comes home,” the currency strengthens.

The next day, the Nikkei opened lower again; what the market feared most was a Chernobyl-style nuclear panic. The yen continued to strengthen. I made money by betting on foreign exchange and exploiting wide bid-ask spreads. Later, the market rebounded—I’ve forgotten exactly why, but the situation eventually calmed down. To rebuild the nation and financial markets, Shinzo Abe launched “Abenomics” in 2012, explicitly aiming to weaken the yen: instructing the Bank of Japan to engage in unlimited bond purchases under the YCC (Yield Curve Control) framework, pursuing aggressive fiscal expansion, and ultimately replacing the leadership of Japan’s largest pension fund, GPIF, to encourage increased holdings of overseas stocks and bonds while reducing domestic securities exposure. The result—this consequence still haunts the world today:

The Japanese yen has depreciated by more than half.

Chart: The Bank of Japan's holdings of government bonds (white) show a steep upward trend, thereby suppressing the yield on 10-year government bonds (gold).

The collapse of the yen’s international purchasing power has undoubtedly been a major success for global asset markets, as the yen has effectively become a funding currency for corporations and speculators. However, this has also come with consequences. One of them is public anger. Although there is no direct link between the two, when you undermine the dignity of workers through currency manipulation, strange things happen. The Japanese appear outwardly compliant and docile, yet in 2022, an assailant armed with a homemade firearm cold-bloodedly assassinated Prime Minister Shinzo Abe, the architect behind the yen’s devaluation spree, during a campaign rally. This is the inflationary version of “Don’t you dare try.”

Depreciation has also fueled xenophobia. Last winter, at the resort where I often went off-piste skiing, a Japanese man yelled at me, saying I couldn’t use the slopes to hike uphill without a lift ticket. He didn’t know the resort was actually owned by a Chinese consortium—ironic, isn’t it? He vented his anger at foreign skiers, yet I clearly saw Hokkaido filled with Americans, because at an exchange rate of 160 yen to the dollar, skiing in Japan—even accounting for international airfare—is still more than half as cheap as in North America.

For over a decade, the weak, then weaker, then weakest yen has pushed global assets higher; but for the wealthy holding large financial assets, even good things must come to an end. The yen is the world’s most undervalued currency—and a thorn in the side of both the United States and China, as well as ordinary Japanese voters. There are three ways to cut this “Gordian knot,” but the U.S. Treasury and Japanese politicians favor only one.

I will first explain the mechanics behind each mechanism that strengthens the yen, then clarify why officials prefer the third; next, I will discuss how the third mechanism is implemented politically; and finally—this is why you’re reading through all this plain language—I’ll detail why, as dollar liquidity surges, bitcoin and cryptocurrencies will skyrocket.

1. The Bank of Japan's aggressive rate hike has eliminated the interest rate differential between the U.S. dollar and the Japanese yen (at least on the short end).
2. The government has encouraged domestic and public institutions, such as GPIF, to amend their investment mandates to sell foreign assets and buy domestic ones.
3. [Official Favorite] The Ministry of Finance repos its U.S. Treasuries to the Federal Reserve in exchange for U.S. dollars, then sells those dollars and buys yen in the foreign exchange market.

Before diving into the details, crypto traders should ask: Why are we talking about the yen’s strength right now? For decades, countless people have declared, “This is the moment the yen must appreciate and carry trades must be unwound.” Two weeks ago, the U.S. and Japanese monetary authorities conducted a coordinated currency intervention—euphemistically called “market intervention.” To ordinary citizens, this is collusion and conspiracy; to the state, it’s just a different term. U.S. Treasury Secretary Bessent (nicknamed Buffalo Bill Bessent) stated he wants the Fed to raise the counterparty limit for the FIMA repo facility, enabling Japan’s Finance Ministry to use its massive asset reserves to defend the yen. The Finance Ministry has also confirmed it is working with the U.S. to push down the USD/JPY exchange rate. The authorities have plainly told us: they’ve boarded the ship of global monetary shift—and we must pay attention.

Currencies are traded based on interest rate differentials; the U.S. dollar yield is 2.75% higher than the Japanese yen. Borrowing yen, converting it to dollars, and buying U.S. Treasuries generates a positive carry. Therefore, the no-arbitrage principle requires the USD/JPY exchange rate to rise—that is, the yen to weaken against the dollar—to compensate for this differential. The simplest way to strengthen the yen against the dollar is for the Bank of Japan to raise interest rates to the same level as other major central banks, which have all done so since the pandemic.

But to understand the difficulty the Bank of Japan faces in raising rates, remember this: due to over a decade of YCC, the Bank of Japan is the largest holder of those “junk JGBs”—it has printed yen to buy bonds, capping the 10-year yield. When rates rise, bond prices fall; the steeper the decline, the larger the unrealized losses on the Bank of Japan’s balance sheet. Unlike readers like me, the Bank of Japan can sustain infinite yen losses because it can print money at will. But at some critical point, the world will lose confidence in the yen due to massive money printing and stop accepting yen to buy oil, food, or medicine. We’re not there yet, but the Bank of Japan must confront this catastrophic future. It is precisely this fear of realizing losses that paralyzes them, forcing only modest rate hikes while watching the market sell off long-dated JGBs. The yen continues to weaken, and import-driven energy inflation tears apart the social fabric.

Politicians also don’t want the Bank of Japan to raise interest rates, as they rely on issuing JGBs to finance budget deficits. When yields rise, interest payments increase, undermining their ability to buy votes through government giveaways such as consumption tax cuts.

Finally, if the Bank of Japan rapidly raises interest rates and the yen strengthens, spiking the volatility of USD/JPY, it could force all leveraged positions in global equities and bonds funded in yen to unwind. Do you remember July 2024? The yen surged from USD/JPY 160 to 140 in just a few days. I wrote two articles on the subject: “Spirited Away” (August 6, 2024) and “Water, Water, Everywhere” (August 12). The newly appointed Governor of the Bank of Japan, Kazuo Ueda, unexpectedly hiked rates and signaled further increases ahead, triggering panic in markets. Traders who had shorted the yen and gone long on other assets were forced into a collective unwind. At the time, rumors spread that several hedge fund portfolio managers were “patted on the shoulder” and asked to leave—similar to how Kenny G eliminated Leopold—except here, a “pat on the shoulder” meant professional death. When the yen hit 140, the Nasdaq 100 and Nikkei both dropped over 10%. The Bank of Japan panicked and, by August 12, announced it would “consider market conditions” when evaluating future rate hikes—effectively pausing further tightening. After this statement, the yen weakened, equities hit their bottom, and the “only-up-not-down” rally resumed.

The Bank of Japan lacks the courage to withstand the acute market pressure from aggressive rate hikes—its pace of normalization is much slower than that of other major central banks.

I define "Japan Inc." as corporations and the public sector that hold financial assets. Albert Alesserhaus recounted an anecdote in "The Nomura House": after the 1987 stock market crash, the Ministry of Finance instructed Nomura to buy U.S. stocks to stabilize the market. As a private company, Nomura had no obligation to comply, but Japan is a conformist society that values collective action. Often, shareholder returns are not the primary goal of corporations; full employment and national pride are. If the government hinted that private companies and individuals should sell their overseas assets—primarily U.S. stocks and bonds—and convert dollars back into yen, Japan Inc. would comply.

The clearest signal that “it’s time to bring money home” is the movement of Japan’s largest pension fund, GPIF. GPIF is governed by a board of bureaucrats appointed by government ministries. In 2014, to sustain Abenomics’ monetary easing spree, the Prime Minister spent years replacing GPIF board members with loyalists to ensure they voted to increase allocations to foreign stocks and bonds. This was critical, as GPIF manages a portfolio of $1 to $2 trillion. Once its mandate changed in October 2014, it set in motion an unstoppable train: it exchanged yen for dollars to buy U.S. stocks and Treasuries. This created a structural seller of yen, giving speculators confidence to leverage any financial asset with cheap yen, unafraid of rollover or repayment risks due to yen strength.

I mentioned GPIF because recently, Finance Minister Katsunobu Katayama publicly stated that it was time to revise GPIF’s mandate to favor domestic over overseas securities. GPIF’s bureaucratic officials disagree, publicly asserting that they are accountable only to contributors. Clearly, as adherents to Abenomics, they will not support changing the mandate to favor Japanese securities. Just as Prime Minister Abe manipulated the board between 2012 and 2014, Prime Minister Takagi must do the same. For investors, the signposts are clear: GPIF’s mandate will change, forcing it to sell hundreds of billions of dollars in overseas securities, and the returning capital will strengthen the yen. This will continue for years—but it will trouble Beeson, because Japan Inc., as one of the largest holders of U.S. Treasuries, will shift from buyer to seller, undermining the stock and bond markets upon which Pax Americana relies to finance its empire. Yet because Pax Americana underwrites Japan’s national security, Japan Inc. cannot sell its U.S. assets.

None of the above is news. Everyone acknowledges that the yen is cheap. Both the U.S. and Japan want the dollar to strengthen relative to the yen. But neither side dares bear the loss of the dollar-yen rate falling from 160 to 90 (approximately 90 based on purchasing power parity). Option Three was greenlit the moment Trump’s buddy “Weasel Warsh” (he looks like one, and acts like a schemer, right?) became Fed Chair. The 2026 Treasury-Fed Accord is alive and well; in addition to directly financing Besant’s short-term bond issuance via RMP and policy rates below nominal growth, Warsh has the authority to implement Option Three—permanently pegging the dollar-yen rate at the level required to reconstruct the global economic system.

Figure: Cash flow diagram of Option Three using "boxes and arrows"

When Bessent speaks, you’d better pay close attention, or you’ll end up with water spraying in your face again. And don’t talk back.

Bessent explained it in plain terms: Instead of selling U.S. Treasuries to raise yen support funds, the Ministry of Finance and Japan Inc. should use the FIMA program to repo their U.S. Treasuries with the Fed, obtain dollar loans, and then use those dollars to buy yen. There’s a small hiccup in the plan that I’ll get to later, but the box-and-arrow diagram above illustrates exactly this.

Go through the process again:

1. The Ministry of Finance repoed a U.S. Treasury bond through the Fed’s FIMA program to obtain a U.S. dollar loan.
2. The Ministry of Finance sells U.S. dollars and buys Japanese yen in the foreign exchange market.
3. The Ministry of Finance repatriates yen and reinvests in JGBs and stocks.

The meaning of this policy:

1. The Fed created dollars through FIMA, printing money to release them. Its balance sheet expands in tandem with the outstanding FIMA repo volume.
2. The US dollar against the Japanese yen has declined, meaning the yen has strengthened.
3. Japan's bond yields fell due to bond purchases.
4. Japanese stocks rose due to buying activity.

Who is the sucker?

1. Japan owes money to American taxpayers and will never repay it for political reasons. This is pure money printing, which will lead to financial and commodity inflation. The U.S. cannot force Japan to repay its debt while relying on it as a frontline base in Asia to counter China and Russia, as this would undermine Japan’s rearmament capabilities.
2. All those shorting the yen. Once the direction becomes clear, close your positions immediately. This isn’t a major issue, as the USD/JPY volatility will decline, allowing carry trades to be unwound orderly over several years.

Why hasn't it happened yet?

Currently, the FIMA facility imposes a maximum outstanding loan limit of $60 billion per counterparty. The recent U.S.-Japan currency intervention used over $100 billion to push the yen up by only 5%, with a half-life of just a few trading days. To utilize FIMA effectively, the cap must be fully removed and eligible counterparties expanded to include major Japanese corporations and quasi-public investment vehicles (such as GPIF). Who oversees FIMA?

During the pandemic, the FOMC delegated authority to modify the FIMA rules to the Foreign Exchange Subcommittee. The voting members were Wessel (FOMC Chair), Williams (FOMC Vice Chair and President of the New York Fed), and Jefferson (Vice Chair of the Board). The subcommittee could be convened at any time, did not release minutes, and did not disclose voting records—we only learned the outcomes of its decisions. Does the subcommittee listen to Bessen?

Of course. Trump and Walsh frequently speak on the phone. Since Bessent has laid out the cards needed to restructure the USD/JPY exchange rate so clearly, Trump is surely on his side. Therefore, Trump and Bessent will give Walsh instructions. Walsh has already proven himself to be both a double-dealer and a paper tiger. The balance sheet has continued to expand under RMP (overseen by Williams at the New York Fed). Walsh claims he “listens to the market” when setting policy—yet the market is clearly demanding rate hikes, as the 2-year yield is more than 50 basis points above the effective federal funds rate; nonetheless, he refused to hike at the July meeting and instead created five task forces to “study” how the Fed should be reformed. Before these task forces could deliver their recommendations, God arrived. Thus, in a short time, Walsh has shown himself to be merely another partisan enforcer, doing exactly as his boss demands—just like his predecessor, the timid beta coward Powell, and the one before him, the garden gnome Yellen (who, after becoming Treasury Secretary, turned into a bad girl).

Chart: 2-Year U.S. Treasury Yield Minus Effective Federal Funds Rate

I don’t know when Wash will convene the subcommittee or announce amendments to FIMA to enable unlimited money printing and push the USD/JPY lower. But I won’t bet against it. In fact, I’m betting it will happen, and I’m continuing to add positions in assets that reflect another large-scale expansion of the Federal Reserve’s balance sheet—namely, Bitcoin, physical gold, and gold mining stocks.

The more printed, the higher Bitcoin rises. So, is this FIMA scheme enough to act as a faucet, pumping trillions of dollars in "fake money" into the system and inflating our positions?

Currently, we are only concerned with U.S. Treasury holdings, as U.S. Treasuries are the only eligible collateral for FIMA. This may change in the future, but for now, we base our calculations on existing assets. The two entities holding the most U.S. Treasuries are the Japanese government and GPIF.

U.S. Treasury bonds purchased by the Japanese government: $1.143 trillion

GPIF's holdings of U.S. Treasuries: $230 billion

Total: $1.373 trillion

This number is not insignificant. For reference, during the pandemic, the Federal Reserve printed approximately $4 trillion, as evidenced by the expansion of its balance sheet from 2020 to the end of 2021.

There is a very clear correlation between the growth of the Federal Reserve’s balance sheet (white line) and the price surge of Bitcoin (gold line). In my previous piece, I hypothesized that AI infrastructure is entering a phase of “capital waste.” This is critical, because the Trump administration wants to direct this liquidity toward funding U.S. AI capital expenditures rather than inflating crypto. But my argument is that lending money now to AI companies whose capital returns have turned positive—name one major firm that has truly profited by throwing money at its operations, or one U.S. AI lab that can profit under China’s token prices—is wasteful, and Bitcoin’s rise reflects this inefficient allocation of capital. The recent spike in gold from its local lows tells me that markets would rather channel the impending flood of U.S. dollar fiat into monetary financial assets than hand over funds to Sam Altman’s “money-burning machine,” OpenAI, or Musk’s mythical space data centers.

Chart: High positive correlation between the Federal Reserve's balance sheet (white line) and Bitcoin price (gold line)

I know you just want to know what Maelstrom is doing. But context determines whether you dare to take a position. As mentioned, when Bessent speaks, I listen. If there’s one thing he excels at, it’s manipulating a currency. Look up his impressive track record alongside Soros—the man who crushed the Bank of England in the pound forex market. This kind of currency maneuvering doesn’t require approval from elected politicians or nodding consent from officials nearing the end of their terms who must face Senate hearings. All it takes is summoning that sleepy Foreign Exchange Subcommittee to tweak the rules and unleash a flood of printed dollars.

Seeing the headline about Bessent calling for FIMA reform immediately gave me a bullish feeling. Every macro analyst I follow believes this signals a major turning point for USD/JPY. You must position yourself ahead of time, because they’re serious. Printing money is a political decision made to address difficult economic realities. Politics is messy, but this time, the Trump administration wants you to log in to your brokerage and buy financial assets. That’s why Bessent clearly spelled it out for anyone willing to listen: where the printed money will come from. I’m listening—and I’ll do my part… by buying financial assets.

We are heavily positioned in Bitcoin, so the next question is: which horse is the fastest? This isn’t an AI stock investment blog, but if that’s your thing, go ahead and bang your drum. Leopold’s low point gives you an excellent opportunity to get into all AI assets. Turning to crypto, the most undervalued asset in the market is Ethereum. Its narrative: one of the few major altcoins not to hit all-time highs in 2025; moreover, Ethereum will serve as the settlement layer for RWA. That’s powerful.

The next one is a altcoin that hit rock bottom but could easily surge 5–10x: Ethena (ticker ENA). Ethena’s only issue is a lack of buybacks; however, I’m willing to overlook it because it’s still the sixth-largest stablecoin by circulating USD value. The problem with ENA is that falling prices have erased Bitcoin basis yields, leaving the yield on USDe only slightly higher than U.S. Treasuries. Holding a synthetic dollar with CEX counterparty risk and smart contract risk just doesn’t make sense. That’s why its circulating supply dropped 75% and ENA’s price fell over 90%. Even a modest increase in USD liquidity driving a Bitcoin pump would sharply boost basis yields and trigger massive inflows into USDe. It wouldn’t take much to lift ENA out of its slump—so it’s my small bet for a quick 5x gain over the coming months.

I haven’t yet “gone all in” to reduce my USD balance to the minimum. We must wait for Wash to convene the subcommittee and amend the FIMA rules. Stay alert; it could happen unnoticed. But gold and USD/JPY should start moving before the official announcement. Even if for no other reason, someone with close ties to the Trump administration and a heavy position will likely front-run—this has happened across every asset class; why should gold and forex be any different?

The days of cheap yen are over. Good. There are too many foreigners trampling my snow trails in my magical Hokkaido volcano. And all you skiers—fuck off—bring a splitboard when you come into the backcountry.