Yen Weakens Despite $97 Billion Intervention; Bitcoin Carry Trade Risk Looms

The Japanese yen weakened again this week, even as authorities spent approximately $97 billion over the past month to support it. The decline intensifies pressure on officials to take action, with possible spillover effects on Bitcoin.

Why Japan's Yen Support is Losing Steam

On Friday, 28 August, the yen fell to 160.16 yen per dollar, giving up more than half of the gains from the prior month's intervention. A weaker yen makes imports pricier for Japanese households and businesses.

Between 30 July and 26 August, Japan spent ¥15.4 trillion propping up its currency. The campaign included a rare joint action with the US on 31 July, when both countries bought yen to boost its value.

US interest rates remain higher than Japan's, making dollar assets more attractive. The dollar received further support this week after Federal Reserve Chair Kevin Warsh vowed to bring inflation back to target.

How Yen Strength Could Pressure Bitcoin

Bitcoin briefly dipped below $77,000 after Warsh's speech, as investors expected higher US rates.

Japan could add to that downward pressure. Some investors borrow cheap yen and use the funds to buy assets elsewhere. This is known as the carry trade.

If fresh intervention or higher Japanese rates push the yen sharply higher, repaying those loans in other currencies becomes costlier. Investors may sell assets to cover their debts, potentially dragging Bitcoin lower.

This scenario has occurred before. In August 2024, the reversal of yen-funded trades deepened sell-offs. Bitcoin and Ethereum suffered declines of up to 20%.

Metaplanet CEO Simon Gerovich sees a long-term opportunity. Speaking in Hong Kong this week, he argued that Asian savers were ready to move beyond cash and adopt Bitcoin.

His company buys and holds Bitcoin, giving him a financial stake in that outlook. Such demand could grow over time. Still, Bitcoin remains vulnerable to sudden sell-offs.

"The buyers arriving now aren't going anywhere. I believe the bottom is in. And I'm expecting a much brighter rest of the year," Metaplanet's CEO said.