Bitcoin and Nasdaq React to Rising Yen: Temporary Volatility or Trend Shift?

The recent declines in Bitcoin (BTC) and the Nasdaq coincide with a sharp rise in Japanese government bond yields and the strengthening yen (JPY), echoing market trends from last August. The yen’s rally, driven by narrowing U.S.-Japan bond yield differentials, may have triggered a wave of risk aversion across global markets.

Historically, the low-yielding yen has supported asset prices worldwide, and its current strength could be pressuring equities and crypto. However, bullish bets on JPY appear overstretched. The latest CFTC data reveals record-long yen positions, suggesting a possible reversal as traders unwind their positions. This could provide relief for risk assets, including BTC and stocks.

Morgan Stanley's FX strategists caution against chasing further yen strength, noting Japan’s domestic investors tend to buy foreign assets on dips, slowing the yen’s gains. Additionally, the public pension system often rebalances against JPY trends, as seen in last August’s market shift. The USD/JPY pair, which fell to 140 in August before rebounding to 158.50 by January, suggests history may repeat itself, potentially driving a renewed rally in BTC and stocks.

At press time, BTC hovered around $80,300, extending its decline after dipping to $76,800 earlier Tuesday. Meanwhile, USD/JPY traded at 147.23, slightly above its five-month low of 145.53.

While a temporary relief rally is possible, broader yen strength remains supported by a shrinking U.S.-Japan bond yield gap, now at its lowest since 2022. Investors should watch for further volatility in JPY and global financial markets as they assess whether this is a short-term pause or a deeper trend reversal.