The Japanese yen, traditionally seen as an anti-risk currency, is poised to strengthen as speculation about a potential rate hike by the Bank of Japan (BOJ) in December gains momentum.
Bitcoin’s (BTC) bullish rally has encountered some resistance this week, partly due to a dip in demand from U.S. investors. The AUD/JPY currency pair, often regarded as a key risk indicator, has reversed course, suggesting caution for those invested in risk assets.
The Australian dollar (AUD), typically tied to global economic health and commodities, serves as a proxy for risk sentiment, especially in emerging markets like China. In contrast, the Japanese yen (JPY) is viewed as a safe-haven currency, with investors flocking to it during periods of market uncertainty. A decline in the AUD/JPY pair often signals a broader risk-off environment.
Matt Simpson, an analyst at The City Index, warned, “As AUD/JPY is a classic barometer of risk, we should note that the current levels are concerning. If AUD/JPY falls further, it is likely to signal broader market risk.”
While some crypto bulls might dismiss the fluctuation in the foreign exchange market as irrelevant, history suggests it could have significant implications for Bitcoin. Recall the events of late July and early August, when the Japanese yen started to appreciate amid speculation that the BOJ was preparing to raise rates. The AUD/JPY pair dropped by more than 8% to 98, marking the beginning of a risk-off period that saw Bitcoin’s price fall from around $70,000 to $50,000. This drop was driven by traders unwinding their bullish positions funded by cheap JPY-denominated loans, with the yen’s strength signaling growing market caution. The AUD/JPY eventually found support at 90 and rebounded alongside other risk assets.
Currently, the AUD/JPY pair has dipped below its trendline, breaking the recovery from its August low of 90. This movement points to renewed yen strength, fueled by increasing speculation that the BOJ will raise rates in December.
To compound matters, markets are also second-guessing the Federal Reserve’s plans, with expectations that it may not cut rates further next month. Additionally, renewed trade war fears, particularly surrounding President-elect Donald Trump’s proposed tariffs on Mexico, Canada, and China, have added to market uncertainty.
ING highlighted the growing expectations of a BOJ rate hike, noting that BOJ Governor Ueda’s recent comments left the door open for further tightening. “On November 21, Ueda stated that the BOJ would ‘decide at each meeting,’ which has fueled speculation that a rate hike could happen in December,” ING explained in a recent note.
For Bitcoin bulls, it may be wise to monitor the yen-driven risk-off trend closely. Should this scenario unfold, it could push Bitcoin’s price below the $90,000 mark once again.
