The Japanese yen has shown significant strength against the US dollar, with a 2.4% increase since last Thursday, ending its recent period of decline. This rise resembles the market movement in early August when global stock indices and Bitcoin (BTC) experienced downturns. The yen has also strengthened by over 1% against the Australian dollar and remained strong against the Euro and British Pound.
Japanese Yen’s Sudden Recovery
The foreign exchange market’s current state mirrors the yen’s performance in late July and early August. This resurgence has led to the unwinding of investments made using cheap Japanese yen credit, negatively impacting Bitcoin and other cryptocurrencies. Notably, Bitcoin dropped from $70,000 to $50,000 within eight days before climbing back to $60,000 as the USD/JPY rate increased.
Can Yen Strength Impact Markets Again?
The strengthening yen is causing disruptions as stop-losses are triggered, and risky positions are closed. Simon Ree, a renowned trader, noted that this situation is destabilizing global risky assets. Andrei Kazantsev, head of Goldman Sachs’ crypto-related trading desk, commented on how Bitcoin and Ethereum (ETH) were affected by the unwinding of yen carry trades and the global VAR shock on August 5. This volatility forces investors to pull back from risky assets.
Currently, the yen is on an upward trend, urging cryptocurrency investors to be cautious. Over the past three weeks, the yen has risen from 161 to 141.68 against the US dollar, prompting investors to buy dips in the currency. ING stated on August 16 that a 20-point drop in USD/JPY could influence future market directions and behaviors, potentially leading to further yen strengthening.
Investment Strategies Amidst Yen Strength
- Monitor USD/JPY fluctuations closely.
- Consider potential impacts on cryptocurrencies like Bitcoin and Ethereum.
- Stay informed about FOMC interest rate decisions.
- Be wary of the risks associated with carry trade unwinding.
Some analysts speculate that the carry trade might resume soon, influenced by the US economy and the Federal Open Market Committee’s (FOMC) upcoming interest rate decision in mid-September. Currently, there is a 50% chance predicted for a 50 basis point increase in September, although this may decrease as the meeting approaches. If the Fed opts for a 50 basis point cut, the market may react positively at first, but concerns about the yen’s strength could trigger a sell-off due to renewed carry trade unwinding.