The yen is surging and it’s helping bitcoin, for now
The Japanese Yen's recent surge is causing broad-based dollar weakness, which is currently providing a tailwind for Bitcoin and gold. However, the author warns that a disorderly unwinding of the yen carry trade could lead to market-wide risk aversion and volatility.
Why it matters
The yen carry trade is a major driver of global liquidity; its volatility directly impacts the stability of risk-on assets like cryptocurrencies.
The dollar-yen (USDJPY) pair, one of the most heavily traded globally, has dropped by 1.4% to 156.40, extending Wednesday's 0.9% drop, according to data source TradingView. These are big moves for a major fiat currency like the yen, and it is leading to broad-based dollar weakness. For instance, EUR/USD, GBP/USD and AUD/USD are all trading slightly higher on the day.
The net effect is that the DXY, which measures the greenback's value against majors, has dropped by 0.4% to 99.22, testing its average over 200-days, which is used by traders to gauge long-term trends.
Should this level break, more pronounced dollar selling could follow, given the average is widely tracked by traders worldwide – a self-fulfilling dynamic.
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