Coordinated Yen Buying Intervention Raises Caution in Cryptocurrency Since 2011 = Analysis

Key Points of This Article

• U.S. 30-year bond yield at 5.27%, the highest since 2007
• QCP cites BIS analysis from August 2024, raising caution

Coordinated Intervention Between Japan and the U.S. Since 2011

On the 3rd, Singapore-based cryptocurrency market maker QCP Group analyzed the coordinated foreign exchange intervention between Japan and the U.S. in their market report "QCP Market Colour." The New York Federal Reserve explained that it conducted yen buying last Friday as an agent of the U.S. Treasury, simultaneously with Japan's Ministry of Finance intervention.

QCP positioned this intervention as the first coordinated foreign exchange intervention between Japan and the U.S. since 2011, and the first yen-targeted intervention since 1998. They pointed out that the role taken by the New York Fed was not an independent monetary policy determined by the FOMC (Federal Open Market Committee), but rather as an agent of the Treasury.

The Truth Behind Rising U.S. Long-Term Interest Rates

QCP focuses on the upward pressure on yields in the long-term zone of the U.S. Treasury market. The 30-year bond yield rose to about 5.27% on Friday, marking the highest level since 2007. Although it fell to 5.24% on Monday, it remains at a high level.

The breakeven inflation rate for 10-year bonds (a measure of market expectations for inflation) stood at about 2.28% at the end of July, which QCP analyzes does not fully explain the rise in nominal long-term yields.

Factors such as real yields, term premiums, demand for government bond issuance, and changes in investor demand are highlighted as contributing factors.

According to QCP, Japan is one of the major foreign holders of U.S. Treasuries, and yen buying interventions are funded by foreign reserves, which may involve selling part of dollar assets.

However, they indicated that the timing and scale of sales are not determined automatically, and the impact of repeated interventions on U.S. Treasury demand is not direct or immediate.

Supply Factors Also Pressuring Interest Rates

QCP also mentioned supply-side factors. The U.S. Treasury estimates that net issuance of privately held securities will amount to $671 billion in the quarter from July to September. During the same period, major tech companies are expanding bond issuance to finance AI infrastructure investments, with issuance from hyperscalers (large IT companies providing cloud services) reaching about $170 billion by the end of June.

While these capital flows cannot be said to be the direct cause of rising yields, they analyze that they are increasing the amount of duration that investors need to absorb. The interplay between monetary policy, government financing, corporate financing, and cross-border capital flows is strengthening.

Ripple Effects on Cryptocurrency

QCP emphasizes the ripple effect on cryptocurrencies through yen carry trades. If a rapid appreciation of the yen occurs, investors holding positions funded in yen may reduce leverage and increase the movement to buy back the funding currency, the yen.

QCP references the sharp decline in August 2024, stating that the unwinding of leveraged currency and equity positions amplified the initial market shock, and the Bank for International Settlements (BIS) also analyzed that the deleveraging of carry trades contributed to the severity of price movements. The market subsequently stabilized relatively quickly.

However, QCP adds that this intervention does not necessarily lead to similar results. The interest rate differential between Japan and the U.S. remains significant, and whether the yen's recovery is sustained depends on future monetary policy outlooks and the necessity for additional interventions.

Two Liquidity Channels

QCP organized the implications for the cryptocurrency market in two directions. In the short term, rapid fluctuations in the yen could lead to deleveraging and increased volatility across assets. In the long term, as currency stability increases, the likelihood of repeated interventions may decrease, potentially easing pressure on liquidity in the U.S. Treasury market.

QCP stated that it is uncertain which outcome will occur, but suggested that trends in USD/JPY, Japan's funding environment, and U.S. long-term bond yields should be added to macro indicators related to Bitcoin and Ethereum. They concluded that not only the Fed's statements but also the Treasury's policy management are becoming materials for market judgment.

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