Yen Carry Trade Threatens Cryptocurrency Market Stability

Investors in the cryptocurrency market should pay close attention to interest rates and yen movements in Japan, according to Dom Kwok, co-founder of EasyA. The Japanese yen has historically been a key player in global markets due to its low or even negative interest rates for many years.

This created a significant source of cheap liquidity for global investors, who borrowed yen at low interest rates and converted them into other currencies like the dollar before investing in assets with higher return potential, such as stocks, bonds, and cryptocurrencies.

As Kwok explained, this strategy is known as the 'yen carry trade.' The weak yen makes these trades more attractive, which can support the flow of liquidity into the cryptocurrency market. However, a strengthening yen and rising interest rates in Japan can reduce the profitability of such trades.