Famously volatile cryptocurrencies remained surprisingly stable today as the Japanese yen hit a 34-year low against the US dollar. This unexpected event caused market observers to consider potential ripple effects.
The Japanese yen (JPY) fell another 1.3% on the day, marking a significant shift for the major currency and falling to its weakest level against the US dollar since 1990. This comes after the Bank of Japan (BOJ) kept interest rates near zero and expressed little concern about the depreciating currency.
Meanwhile, continued strong economic growth and high inflation in the United States dampen hopes for a possible easing of monetary policy this year.
“Movements of this magnitude and speed in currencies are not normal, so I would expect some intervention or coordination fairly soon if it continues over the next few weeks,” said Quinn Thompson, founder of hedge fund Lekker Capital.
The devaluation of the Yen has not yet affected the cryptocurrency markets. However, this could change if the BOJ intervenes to support the currency, according to Noelle Acheson, analyst and author of Crypto Is Macro Now reports. Such an intervention would involve the BOJ selling US dollar assets (US Treasury bonds) to buy yen, and a weaker dollar could theoretically boost crypto prices.
Thompson added that another form of intervention could be if US policymakers decide to inject liquidity into the markets, which could support risky assets such as cryptocurrencies.
Looking ahead, Acheson predicted that “the currency turmoil will not end with the yen.” The recent rise in US yields following reports of persistent inflation will put pressure on other currencies and potentially encourage other central banks to take action.
“We could see a mass sale of US Treasuries to raise cash to support local currencies, adding further upward pressure to US yields while exacerbating inflationary pressures elsewhere,” Acheson said.
“This exchange rate volatility and fragility could encourage more corporate and even government holdings of hedges like gold and Bitcoin.”
*This is not investment advice.