Japan's Economic Recovery May Crush Crypto Prices

Japan's economy has finally escaped its 30-year economic slump, but this recovery may come at a cost for cryptocurrencies. According to JPMorgan Asset Management strategist David Lebovitz, Japan is generating nominal growth for the first time in decades, which has brought inflation and crushed the yen. The currency hit a 40-year low near 164 per dollar in July, and while it was temporarily propped up by a $88 billion rescue from the US and Japan, it has already weakened back to its current price of around 159.50 yen.

The Bank of Japan (BOJ) held rates near zero from 1999, making the yen the cheapest money on Earth. This cheap money funded risk bets around the world, including crypto, which grew up during this easy-money era. However, with growth comes inflation, and higher interest rates are now being implemented to combat it.

US Treasury Secretary Scott Bessent says that higher Japanese rates are the real fix for the yen's weakness. Markets agree, pricing in another hike by October, Japan's third in 12 months. This has already had an impact on crypto, with Bitcoin (BTC) falling about 25% in one week to near $49,000 during a previous rate hike.

BitMEX co-founder Arthur Hayes argues that a Fed-backed yen defense could add liquidity and pump Bitcoin instead of hurting it. However, the BOJ's September and October meetings will be crucial in determining how crypto is affected by Japan's economic recovery.