Bitcoin and gold are benefiting from the yen’s latest surge, as the Japanese currency’s strength puts additional pressure on the U.S. dollar. For now, the relationship is working in favor of risk assets.

The yen has been gaining broadly even as BTC and gold move higher, an unusual combination given that a stronger yen is often associated with defensive market positioning. The main driver appears to be the currency’s influence on the broader dollar market.

USD/JPY dropped 1.4% to 156.40 after falling 0.9% on Wednesday, according to TradingView. The move is notable given the pair’s importance in global foreign-exchange trading. Other major currencies have also gained against the dollar, with EUR/USD, GBP/USD and AUD/USD all slightly higher.

That broad dollar weakness has pushed the Dollar Index down 0.4% to 99.22. The DXY is now testing its 200-day moving average, an important benchmark used by traders to assess longer-term trends.

A break below the 200-day average could encourage another wave of dollar selling. Because the level is monitored closely by traders around the world, a decisive move beneath it could amplify the selling pressure.

The decline in the dollar is generally favorable for bitcoin. A weaker greenback tends to support dollar-priced assets such as BTC and can contribute to easier financial conditions globally, encouraging investors to take on more risk. Conversely, dollar strength has historically created a tougher environment for bitcoin.

Carry Trade Risk Remains

The yen’s appreciation is currently helping bitcoin and gold by dragging the DXY lower, but a much faster yen rally could produce the opposite result.

For years, investors have taken advantage of Japan’s low borrowing costs to fund positions in equities, bonds and cryptocurrencies. If the yen strengthens rapidly, those yen-funded trades can become less attractive and potentially trigger widespread position unwinding.

International investors holding Japanese stocks could sell as currency conditions change, while Japanese investors who used inexpensive yen to buy foreign assets could also unwind those positions. Such activity could push markets toward a risk-off environment.

Bitcoin experienced a similar shock during the August 2024 yen carry-trade unwind, when BTC lost roughly 20% in just a few days.

The next phase of the yen move remains uncertain. However, the market is increasingly leaning toward additional gains for the Japanese currency, with traders assigning a higher probability to the Bank of Japan raising rates from 1% to 1.25% at its Sept. 18 meeting.

Authorities are also taking steps aimed at supporting the yen. Earlier in August, the U.S. and Japan reportedly intervened to address “disorderly yen movements” and help strengthen the currency.

For bitcoin, the key question is whether the yen continues to rise gradually, which could keep the dollar under pressure, or accelerates sharply enough to trigger another unwinding of leveraged yen-funded trades.