Yen Strength Could Ease, Offering Relief to Bitcoin and Nasdaq
The recent downturn in both the Nasdaq and bitcoin (BTC) has coincided with a sharp rise in Japanese government bond yields and a strengthening Japanese yen (JPY), echoing market conditions from last August. While this may be a coincidence, historical trends suggest a potential link between yen movements and risk asset performance.
For decades, the low-yielding yen has supported global asset prices, and its recent appreciation could be contributing to Wall Street’s risk aversion and the crypto market’s slump. However, the bullish positioning in the yen appears overstretched. According to CFTC data from MacroMicro, speculators held record-long yen positions last week. Such extreme positioning often leads to a reversal as traders unwind their positions, potentially capping yen gains and creating conditions for a bounce in risk assets like the Nasdaq and bitcoin.
Institutional Buying Could Slow Yen’s Gains
Morgan Stanley’s G10 FX Strategy team cautioned against expecting further yen appreciation, citing stretched speculative positioning and strong dip-buying interest from Japanese investors. The Nippon Individual Savings Account (NISA) scheme allows Japanese investors to acquire foreign assets during risk-off periods, slowing the yen’s upward momentum. Additionally, Japan’s public pension system often counterbalances market trends by rebalancing away from yen assets.
This pattern was observed last August when a sharp yen rally coincided with an equity sell-off, followed by a reversal that reignited risk-on sentiment. After USD/JPY declined to 140 in early August, it rebounded to 158.50 by January. Similarly, BTC surged from $50,000 in August to an all-time high above $108,000 in January.
At the time of writing, bitcoin was trading near $80,300, down 5% for the month after extending February’s 17.6% decline. Earlier Tuesday, BTC briefly dipped to $76,800, according to CoinDesk data. Meanwhile, USD/JPY was trading at 147.23, having hit a five-month low of 145.53 earlier in the day, per TradingView data.
Short-Term Relief, But Yen’s Bullish Outlook Remains
Although the stretched bullish positioning and institutional flows suggest potential near-term relief for risk assets, the broader trend for yen strength remains intact. The narrowing U.S.-Japanese bond yield spread—now at 2.68%, its lowest level since August 2022—points to continued JPY strength. Additionally, the spread’s break below a long-term macro uptrend signals a significant shift in the yen’s outlook.
As a result, while bitcoin and the Nasdaq may find temporary support, risk-asset bulls should remain cautious about volatility in the yen and broader financial markets.
