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Arthur Hayes believes that yen intervention will only be bullish for Bitcoin if the Fed balance sheet expands.
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Federal Reserve data shows that foreign currency assets are flat and liquidity is still contracting.
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Analysts warn rapid yen strengthening could trigger carry trade unwindings and pressure Bitcoin.
Former BitMEX CEO Arthur Hayes said that a possible intervention to support Japanese yen may benefit Bitcoin if this leads to new U.S. dollars liquidity.
His comment follows reports that the New York Fed conducted dollar-yen rate tests in January. The Federal Reserve’s current balance sheet data shows no evidence that liquidity has been expanded.
Hayes links Yen intervention to Liquidity Increase
Hayes wrote in a post for X that the Fed would have to buy yen and sell dollars, increasing the liquidity of the financial system.
Hayes said that the Federal Reserve’s H.4.1 weekly report is the key indicator. He said that an increase in “foreign currency-denominated assets” would indicate that the Fed was expanding its balance sheet.
In the past, periods of growth in balance sheets have coincided closely with higher Bitcoin performance.
Rate Checks Raise Speculation, but Stop Short of Action
After reports that the New York Fed checked dollar-yen rates yesterday, January 23, speculation intensified. According to Grok AI rate checks are often viewed as a sign that authorities are closely watching currency markets. They are often carried out before an intervention, but they do not confirm it.
Japanese officials have warned against excessive currency movements this month. After these developments, the yen briefly traded near 155.90 dollars per yen after a sustained period of weakness. Despite the signals, there has not been an official confirmation of U.S. intervention or coordinated action.
Balance sheet data shows no expansion yet
Federal Reserve data do not yet support Hayes’s bull case for liquidity. The latest H.4.1 releases indicate that foreign currency assets are holding steady at $19 billion with no noticeable increase.
The Fed’s balance sheet continues to shrink. Brain AI estimated that the balance sheet is shrinking by approximately $75 billion each month. The latest data also showed a sharp decline in bank reserves, indicating a net liquidation drain rather than influx.
The overall balance sheet was not expanded, even though Treasury holdings were slightly higher in the latest report. Analysts said that this indicates a continued quantitative tightening, rather than a shift in policy.
The Yen Strength is a Short-Term Risk for Bitcoin
Brain’s analysis warned that currency movements could become abrupt if the yen intervenes. A rapid rise in yen could trigger a de-winding of the carry trade, in which investors borrow yen in order to fund higher-risk investments.
Investors often sell risky assets to cover their positions when these trades unwind. Analysts said that this process could weigh on equities, cryptocurrencies, and Bitcoin, even if liquidity conditions improve later.
As of this time, Bitcoin is trading at $89470. The dollar-yen rate fluctuates between 155.5 and 158.
What Markets are Watching Next
Crypto Observer HQ also noted that clear evidence of a balance sheet expansion would be required to confirm a bullish change. This would appear as an increase in foreign currency assets, without compensating reductions elsewhere on Fed’s balance sheets.
Until then observers describe the current conditions as a reallocation of liquidity rather than a pivot. Investors are looking forward to upcoming H.4.1 releases in order to see if the yen stabilization effort is translating into net dollar liquidity.
Analysts say that for now, yen interventions remain a potential source for volatility for Bitcoin and not a catalyst for sustained gains.
RelatedBank of Japan Maintains Rates at 30-Year-High as Debt and Yuen Risks Abound for Crypto
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