Bitcoin’s 52-Week Correlation With USD-JPY Falls to -0.90, Challenging Yen Carry Unwind View

Bitcoin’s 52-week correlation with the dollar-yen exchange rate has fallen to -0.90, raising questions about the longstanding view that yen strength is a negative for crypto markets.

CoinDesk reported on June 30 that the 52-week rolling correlation between Coinbase’s BTC/USD pair and the foreign-exchange market’s USD/JPY rate reached -0.90. That marks the lowest level since late 2022.

A reading of -0.90 indicates the two assets have moved in sharply opposite directions. When USD/JPY rises, meaning the yen weakens, Bitcoin has tended to fall. When USD/JPY declines, meaning the yen strengthens, Bitcoin has tended to rise.

Squaring that figure produces a coefficient of determination of about 0.81. Statistically, that suggests moves in USD/JPY can explain about 81% of Bitcoin’s weekly price fluctuations over the past 52 weeks.

CoinDesk said correlations between Bitcoin and major currency pairs are typically weak and unstable, making a 52-week reading of -0.90 unusual. Bitcoin’s correlation with major foreign-exchange pairs often ranges from -0.3 to +0.3 depending on the measurement period.

The latest reading also runs counter to the conventional interpretation of the yen carry trade. The strategy involves borrowing low-interest yen to invest in higher-yielding assets. Under that framework, a weaker yen supports appetite for risk assets, while a stronger yen is viewed as a sign of carry-trade unwinds and rising risk aversion.

That dynamic was evident from late July to early August 2024, when the Bank of Japan raised interest rates. The yen surged and Bitcoin fell from about $65,000 to near $50,000.

Viewed only through the recent correlation, however, yen strength may not be a headwind for Bitcoin and could instead offer downside support. Bitcoin has recently tended to rise as USD/JPY falls and the yen strengthens.

CoinDesk cautioned that correlation does not imply causation. Rather than Bitcoin and the yen driving each other directly, both may have been moving in response to broader strength or weakness in the US dollar.

More recently, markets have been pricing in the possibility that the Federal Reserve could deliver at least one 0.25 percentage-point rate increase this year. As expectations for rate cuts faded and markets repriced in a more hawkish direction, the dollar strengthened broadly. The euro, Australian dollar, New Zealand dollar, gold and silver also weakened against the greenback.

CoinDesk said investors should not draw firm conclusions from the high correlation between Bitcoin and USD/JPY alone and should also weigh the broader direction of the dollar and the outlook for interest rates.