Yen Strengthens, Bitcoin Finds Support: Will the Approximately 20% Loss from 2024 Repeat?

While the strengthening yen weakens the dollar and supports Bitcoin for now, a rapid yen rally could reverse this picture.

As the Japanese yen gains value against the dollar today, Bitcoin is trading at approximately $77,877. Market data cited by CoinDesk shows that the yen’s impact on the dollar is at the center of this contrasting movement.

The USD/JPY pair fell 1.4% to 156.40. The pair had also lost 0.9% the previous day. The strengthening yen pushed the DXY index, which measures the dollar’s performance against major currencies, down 0.4% to 99.22.

The index is testing the 200-day moving average, which investors use to track the long-term trend. A break below this level is considered a technical signal that could increase dollar selling.

Risk for Bitcoin Could Increase if the Yen Rally Accelerates

A weakening dollar can support assets priced in dollars, such as Bitcoin. A lower dollar value also eases global financial conditions, making it easier for investors to turn to risky assets like stocks, bonds, and cryptocurrencies.

However, if the yen’s rise accelerates in a disorderly fashion, the unwinding of risky positions could come into play. Investors have long been using yen borrowed at low costs to purchase stocks, bonds, and cryptocurrencies in different countries. If the yen gains value rapidly, asset sales could begin to close these transactions.

This mechanism has been seen to put pressure on Bitcoin in the past. During the yen-driven carry trade unwinding in August 2024, Bitcoin fell by approximately 20% within a few days. The yen’s direction may also be influenced by expectations regarding the possibility of the Bank of Japan raising interest rates from 1% to 1.25% at its September 18 meeting.