Japanese Yen gains strength against the US dollar. This situation resembles the market movement at the beginning of August when global stock indices and the largest cryptocurrency Bitcoin (BTC) fell.
Japanese Yen Rises Again
The Japanese yen has strengthened by 2.4% against the US dollar since last Thursday, ending its recent decline. This indicates that the “risk-averse” currency is being preferred again. The Japanese yen has also strengthened by over 1% against the Australian dollar and is in good shape against the Euro and British Pound.
The foreign exchange market resembles the performance of the Japanese yen at the end of July and the beginning of this month. This situation has led to the end of some investments using cheap Japanese yen credit. This has also harmed Bitcoin and altcoins. BTC fell from $70,000 to $50,000 within eight days before rising to $60,000 with the increase in USD/JPY.
Strengthening of Japanese Yen May Shake Markets Again
The strength of the Japanese yen causes problems as stops are triggered and risky positions are unwound. Famous trader Simon Ree warned on X, “This situation is shaking global risky assets.”
Goldman Sachs‘ head of crypto-related trading desk Andrei Kazantsev recently commented on how Bitcoin and Ethereum (ETH) were caught in the unwinding of the Japanese yen carry trade and the global VAR shock on August 5. VAR is the maximum loss amount that a market can sustain over a certain period. Sudden volatility forces investors to reduce their investments in risky assets.
Currently, the Japanese yen is strengthening, and therefore cryptocurrency investors should be cautious. The Japanese yen has risen from 161 to 141.68 against the US dollar in three weeks. This situation has encouraged investors to buy the dips in the Japanese yen.
ING stated on August 16, “A 20-point drop in USD/JPY will affect future direction and behavior expectations. People will likely buy more Japanese yen at lower prices, increasing the likelihood of the yen strengthening.”
Some say that the carry trade might restart in the coming weeks. The reason given is the US economy and the Federal Open Market Committee‘s (FOMC) next interest rate decision meeting scheduled for mid-September.
FFFs currently predict a 50% chance of a 50 basis point increase in September, but this probability is expected to decrease as the FOMC meeting approaches. If the Fed goes for a 50 basis point cut, the market will initially react positively, but concerns about the economy and the increase in the strength of the Japanese yen could trigger a wave of selling as it revives carry trade unwinding.
