It can be a coincidence, but the recent decrease in Nasdaq and Bitcoin (BTC) coincides with a strong increase in the yields of the Japanese government bonds and the strengthening of the Japanese Yen with safe refuge (JPY), which reminds the dynamics of the market observed in early August.
There could be a causality here, since, for decades, the low performance supported the prices of global assets. The continuous increase in Japanese Yen may have had a hand in the recent risk aversion on Wall Street and in the cryptography market.
That said, the bullish positioning in the Japanese Yen seems overloaded, with speculators that have long week records last week, according to CFTC data tracked by macromicro. Such extreme bullish positioning, which represents a collective belief in a higher continuous movement in the asset, prepares the scenario for disappointment, followed, that a massive disappointment of the lengths develops, which leads to a rapid bearish investment.
In other words, the rise of Yen could stop for now, offering relief to risk assets, including Nasdaq and Bitcoin.
“Now we are cautious by pursuing the strength of JPY more, given the stretched speculative positioning, as well as the strong purchase appetite of immersion sauce of the national community,” said the G10 FX strategy team of Morgan Stanley in a note to customers on Friday night.
The strategists explained that many Japanese investors use the Nippon individual savings account scheme (NISA) to obtain foreign assets during risk, inadvertently decelerating the rhythm of JPY’s appreciation. In addition, the public pension system tends to go against the trend, rebalanced JPY’s assets.
“In fact, such a scenario occurred last August after a strong appreciation of the JPY and the pronounced sale of shares,” the strategists said.
Let’s see if the story is repeated, which triggers a feeling of renewed risk for Nasdaq and Bitcoin. The USD/JPY pair appeared after July and early August to 140, and finally increased to 158.50 in January. BTC also appeared from the accident at the beginning of August to $ 50,000, increasing new records exceeding $ 108,000 in January.
At the time of publication, Bitcoin traded about $ 80,300, which represents a monthly decrease of almost 5%, which extends due to the drop of 17.6% in February. In a moment on early Tuesday, prices fell to $ 76,800, according to Coindesk data.
Meanwhile, USD/JPY was negotiated at 147.23, after having put a minimum of five months of 145.53 on early Tuesday, as shown in the commercial view data.
I breathe temporary?
While the positioning of the stretched bull and institutional flows suggest a relief ahead, these factors can do little to alter the broader bullish perspectives for JPY, which is backed by a differential of performance of US-Japanese links.
Therefore, the bulls of the risk assets must be attentive to the signs of volatility in the YEN and the broader financial markets.
The picture shows the propagation between the yields of the 10 -year -old US and Japanese government bonds.
Propagation has been reduced to 2.68% in a positive way JPY, reaching the lowest since August 2022. In addition, it has diverted a macro trend, which suggests a great upward change in JPY’s prospects.
