Bitcoin 
$95,195 experienced a sharp decline after reaching an all-time high of $126,200, influenced by the drastic increase in Japanese government bond yields and the rapid depreciation of the yen. At the start of the week, Bitcoin had set records in both dollar and yen terms, buoyed by new Prime Minister Takaichi Sanae hinting at a return to Abenomics. However, the anticipation of increased bond supply and the fluctuating global interest rates dampened enthusiasm for Bitcoin and cryptocurrencies. Meanwhile, the dollar index climbed to a two-month peak, and gold distinguished itself by rising above $4,000 per ounce.
Impact of Japanese Bond Surge on Bitcoin
The announcement by Japan’s new leader, Sanae, of reverting to Abenomics signaled an anticipated rise in government borrowing, which was quickly factored into the markets. Consequently, the yield on 10-year Japanese government bonds soared to 1.70%, marking the highest level since July 2008. Weekly increases exceeded 13.31 basis points, and yearly increments surpassed 76 basis points, extending to long-term bond yields. The 30-year Japanese government bond yield initially rose to 3.34% before settling at 3.16%.
This increase in bond yields, by raising borrowing costs, created a barrier for risky assets, underscoring Bitcoin’s historical correlation with technology stocks. Furthermore, the ripple effect of Japanese market fluctuations poses an additional pressure on the global cryptocurrency markets. Goldman Sachs highlighted the potential for a 10 basis point shock in Japanese government bond yields to raise yields by 2-3 basis points for US, German, and UK government bonds, which would tighten financial conditions and limit cryptocurrency growth.
The Dollar Strengthens as Yen Weakens and Gold Diverges
The dollar index (DXY), heavily influenced by the euro and yen, rose to its highest in two months, while the yen depreciated by up to 3.5% against the dollar since last Friday. Domestic rhetoric favoring low interest rates weakened the likelihood of monetary tightening by the Bank of Japan (BoJ) and accelerated exchange rate movements. The strengthening of the dollar, driven by the euro and yen, created a ceiling effect on dollar-denominated assets.
The ascent of the DXY restricted the upward movement of Bitcoin and other dollar-based commodities, while safe haven demand emerged from another channel. Increased flows into precious metals pushed gold above the $4,000 mark. Amidst a pause in Bitcoin and cryptocurrency momentum, the search for safe havens became more pronounced in precious metals, especially during periods of heightened bond and currency volatility.
