Yen Strength Bets Mount; Bitcoin Faces Carry Trade Risks
Hedge funds bet on yen strength, with dollar-yen options targeting below 150. Bitcoin may face pressure as cheap yen borrowing costs rise.
Treasury Secretary Bessent dares traders to bet against a stronger yen, citing coordination with Japan.
Scott Bessent, the U.S. Treasury secretary, dared market participants to wager against his push for a stronger yen, claiming that his collaboration with Japanese authorities provides him with exceptional knowledge of the Bank of Japan's upcoming actions.
Bessent made the statement on Tuesday during an appearance at Southern Methodist University in Texas, where he justified his unusually hands-on involvement in Japan's currency policy.
āI am the house now, so when we intervene with the Japanese yen, I have pretty good insight into what the Japanese, what the Bank of Japan is going to do, what Japanese policymakers are going to do,ā Bessent said. āAnd you can bet against me if you want.ā
These comments build on Bessent's notably assertive campaign to support the yen. He has coordinated with Japanese Finance Minister Satsuki Katayama on market intervention and urged the BOJ to raise borrowing costs.
An interest rate hike would bolster the yen and reduce Japan's requirement to offload U.S. Treasuries to finance intervention. According to sources, the BOJ could raise rates by a quarter point at its meeting on Sept. 18.
The dollar-yen exchange rate has already dropped toward its highest point this year. On Wednesday, it was trading around „153.6, declining from levels exceeding „155 in recent weeks.
Hedge funds are currently wagering that the currency pair will drop below „150 by the end of the year, and certain options contracts are aimed at a decline as far as „140, reflecting a wager on continued yen appreciation instead of a reversal.
āBessentās remarks carry immense weight. The message is clear: do not defy the Treasury Secretary.ā
ā Tadashi Matsukawa, head of bond investments at PineBridge Investments Japan in Tokyo, via Bloomberg
Japan deployed a substantial $96.4 billion from July 30 to Aug. 26 to support the yen, which had fallen to its weakest in four decades, and the U.S. participated by buying yen as well.
Bessent has furthermore broadened a Treasury buyback initiative for older government bonds. He stated the action was intended to soothe what he called a "fever" in the bond market.
It may become evident this month whether Bessent's assurance can withstand market doubt once the BOJ announces its interest rate decision.
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Hedge funds bet on yen strength, with dollar-yen options targeting below 150. Bitcoin may face pressure as cheap yen borrowing costs rise.
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