Bitcoin traders may want to broaden their macro watchlist beyond the dollar index, as the cryptocurrency’s relationship with the Japanese yen has tightened to unprecedented levels.
The 90-day correlation between bitcoin and Pepperstone’s Japanese yen index has climbed to 0.86, the highest reading on record, according to TradingView data. A correlation that strong indicates the two assets have moved in near lockstep over the past three months.
Put differently, roughly 73% of bitcoin’s price movements during the period can be explained by moves in the yen. That figure, known as the coefficient of determination, is calculated by squaring the correlation coefficient and provides a simple measure of how closely the assets track one another.
Pepperstone’s JPY Index, or JPYX, is a currency index CFD that measures the yen’s performance against a basket of four major currencies — the euro, U.S. dollar, Australian dollar and New Zealand dollar.
The unusually tight relationship suggests bitcoin, long viewed as a largely independent asset, has recently been trading under the influence of Japanese currency dynamics. Over the past 90 days, BTC has risen and fallen alongside the yen, undermining its role as a portfolio diversifier and turning what was once marketed as “digital gold” into a leveraged proxy for yen exposure.
Still, traders should be cautious about extrapolating the trend. Correlations between cryptocurrencies and traditional assets such as currencies and equities are often temporary and can break down quickly.
Bitcoin peaked in early October before sliding over the following two months, mirroring an extension of the yen’s broader downtrend. Selling pressure in both assets eased after mid-December.
The yen has been weakening since April last year amid growing concerns over Japan’s fiscal sustainability, which have pushed government bond yields higher. With a debt-to-GDP ratio near 240%, Japan is among the most heavily indebted countries globally, even though the majority of its debt is held domestically.
That debt burden leaves the Bank of Japan in a difficult position. Raising interest rates would increase debt-servicing costs and strain public finances, while keeping rates low risks further depreciation of the yen.
Some market observers argue the fiscal stress is already being reflected in currency markets through a sharply weaker yen, and that only a potential U.S. recession may offer Japan temporary relief.
