The yen is once again attracting the attention of investors amid growing uncertainty in financial markets. This trend has already been accompanied by significant fluctuations in both traditional and cryptocurrency markets.
Yen Revival
The Japanese yen is gaining strength against the US dollar and other major currencies, echoing early August movements when global stocks and bitcoin experienced significant declines. Since late Thursday, the yen has appreciated by 2.4% against the dollar, reaching 145 per USD and reversing its weakening trend seen since early August. The yen has also strengthened by over 1% against the Australian dollar and shown even greater gains against the euro and British pound.
Crypto Market Implications
The strength of the yen has caused troubles in the crypto market, as investors have begun to reduce their risk positions funded by cheap yen loans. Risk reduction in traditional markets has also negatively impacted bitcoin and other cryptocurrencies. Bitcoin's price dropped from $70,000 to $50,000 in the eight days leading up to August 5, before recovering to $60,000 alongside a rebound in the USD/JPY pair. Yen strength is creating a negative feedback loop, triggering stop-loss orders, and unwinding overextended positions, which is unsettling global risk assets.
Forecasts and Expectations
Some analysts warn that the unwinding of carry trades could resume in the coming weeks, driven by developments in the US economy and the upcoming Federal Open Market Committee (FOMC) meeting in mid-September. Fed funds futures currently indicate a 50% chance of a 50-basis point rate hike in September, but these expectations could decrease as the FOMC meeting approaches. If the Fed hikes rates, an initial positive market reaction could be followed by asset sell-offs amid concerns about the economy and yen strength, possibly causing carry trades to unwind once again.
The strengthening yen is once again leading to significant shifts in financial markets. Investors are focused on economic events and central bank policies, which could further impact cryptocurrencies and traditional markets.
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