A lot can change in just a few days. Bitcoin recently hit new all-time highs in terms of US dollars and Japanese yen, boosted by the new Japanese Prime Minister, Takaichi Sanae’s bias for the ultra-abenomics policy environment.
However, the same Abenomics bias now appears to be working against BTC through its impact on the bond market.
One of the key features of Abenomics is the implementation of an expansionary fiscal policy, characterized by increasing government spending to support economic growth. In other words, the supply of bonds could increase, worsening the already dour fiscal outlook.
Japanese government bonds appear to be priced higher, pushing yields higher. (Bond prices and yields move in the opposite direction.) According to Tradingeconomics, the 10-year JGB yield hit a high of 1.70% early Wednesday, the highest since July 2008. It has risen by 13.31 basis points in a week and more than 76 basis points in 12 months. The 30-year yield rose to 3.34% and quickly returned to 3.16%.
Rising bond yields typically dampen the risk appetite of ZAP investors as they increase the cost of borrowing, denting the appeal of riskier assets such as stocks and cryptocurrencies. Some analysts view Bitcoin as a risk asset and a digital form of gold, although historically data shows the cryptocurrency tends to track tech stocks more closely.
The increase in JGB’s performance is even more worrying, considering its impact on global ties. According to Goldman Sachs, volatility in Japanese bonds could spill over into Treasury notes, adding to market jitters.
For every 10 basis points of “idiosyncratic JGB (Japanese government bond),” investors can expect about two to three basis points of upward pressure on U.S., German and U.K. yields, Goldman Sachs strategists said in a recent market note, according to Bloomberg.
dollar strength
The dollar index has risen to a two-month high and the move is likely led by depreciation in the Japanese yen, which has fallen 3.5% against the USD since Friday.
The decline in the JPY is also linked to Abenomics, which requires low interest rates at home. The likelihood of a Bank of Japan (BOJ) rate hike this month has decreased since Sanae spoke about Abenomics on Saturday.
The dollar index comprises six major fiat currencies: EUR, JPY, GBP, CAD, SEK and CHF. The euro has the highest weight followed by the yen.
A rising DXY often causes financial tightening and upside in BTC, Gold, and other dollar-denominated assets.
While the BTC rally has stalled, gold remains completely unaffected, pushing through $4,000 per ounce as investors continue to search for safe exposure.
