On Tuesday, the governor of the Bank of Japan declared that should the economy and price show expected performance, the central bank would boost the key interest rates even further. Rising around 146 against the US dollar, the Japanese yen recovered from a two-week slump under a hawkish view on the BOJ’s monetary policy.
This hawkish move by the BOJ, and its governor Kazuo Ueda, has led to a strengthening of the Japanese yen (JPY) against other major currencies, including the greenback. The USD/JPY exchange rate has retreated to nearly 150, marking the yen’s strongest position since March.
The appreciation of the yen as a “anti-risk” currency has had knock-on effects on world markets, contributing to tighter financial conditions and higher risk aversion among investors.
Bitcoin: Correlation With Traditional Assets
Bitcoin has shown increasing correlation with traditional risk assets, such as stocks. The recent surge in the yen has led investors to unwind positions that utilized the low-yielding yen for purchasing higher-yielding currencies, known as carry trades. This has put pressure on Bitcoin, as well as other risk-on assets like technology stocks.
Long-Term Consequences And Short-Term Volatility
Following the BOJ rate increase and tightening policies, Bitcoin’s price behavior in the immediate term will most certainly be erratic. The strong dovish signal from the US Federal Reserve at their upcoming meeting will drive the yen higher and hence raise the bar of risk aversion in markets.
Long term, if BOJ activities keep succeeding in improving the investment environment and increasing liquidity, then Bitcoin will follow its positive trend as more investors choose alternative assets.
Globally from a financial perspective, investor mood, and Bitcoin’s relationship with conventional assets could be the most important factors influencing the price movement for the cryptocurrency.
Fights Against Recession: Bitcoin PerformanceThe approaching recession was indeed a divisive issue regarding how it would affect the price of Bitcoin. Some said that investors might swarm to the cryptocurrency for cover due of its being some sort of digital store of value and others believed that when things get dicey economically people usually pull money out from highly speculative investments and put that money wherever they felt safest.
While some degree of short-term volatility is hard to avoid, the long-term fortunes of Bitcoin do depend on a variety of factors–investor sentiment, global economic prospects, and the behavior of traditional assets. The more mature Bitcoin gets via widespread adoption, the more critical it could become as a hedge to economic uncertainty.
Featured image from FXEmpire, chart from TradingView