Bitcoin's Record Inverse Correlation With USD/JPY Challenges Carry-Trade Theory

The yen has long been a major funding currency for global carry trades, with investors often borrowing at low interest rates in yen to buy risk assets such as Bitcoin. Markets have therefore assumed that a stronger yen would force investors to unwind carry trades and drive down cryptocurrency prices. The two assets' extremely inverse movement now suggests that conventional theory may overstate the yen's direct influence.

The latest 52-week data show that Bitcoin's correlation with the U.S. dollar-yen exchange rate, or USD/JPY, has fallen to -0.90, the strongest inverse correlation on record. This means Bitcoin has generally risen when the dollar has weakened against the yen. Analysts say Federal Reserve interest-rate expectations and their effect on the dollar may instead be the main driver of the two assets' synchronized moves.