Yen Surge Tests Bitcoin's Resilience

The yen's recent surge has been closely watched by crypto investors, given its impact on Bitcoin two years ago. In August 2024, a similar rush out of yen-funded trades forced investors to dump risk assets, sending Bitcoin and Ethereum prices plummeting as much as 20%. This time around, however, the market has responded differently.

The danger was always the speed of the move, which can quickly become self-reinforcing. BeInCrypto flagged this risk on September 1, when the yen was still near 159.75 per dollar. As it turned out, the yen did strengthen, but at a slower pace than expected. USD/JPY fell from 160.39 on Wednesday to 154.50 by Monday, meaning the yen strengthened 3.7% in three sessions without another confirmed rescue from Tokyo.

The Bank of Japan's intervention cost nearly $100 billion in August, and it remains unclear whether they have enough firepower left for another rescue. Japan's foreign reserves fell $94.6 billion in August to $995 billion, with foreign securities alone dropping $87.8 billion. This suggests that Tokyo sold short-dated US Treasuries to fund the defense.

According to Akira Nishimura of the Japan Research Institute, Japan still has room to intervene given the amount of securities it holds, but selling US Treasuries to fund further intervention could attract pressure from the US. The Bank of Japan is likely to raise interest rates in September and keep hiking at a pace of once every quarter until January 2027, according to Takuji Aida, an economic adviser to Prime Minister Sanae Takaichi.

The remaining question is how fast the yen keeps rising. Bitcoin has survived the first shock, but a more violent move would be the real test. The price remains above $79,000, close to its highest level since May, which makes this move an important break from the 2024 playbook.