Bitcoin and the Japanese yen have reached their tightest correlation on record, with the 90-day coefficient rising to 0.86. The connection means 73% of Bitcoin price movements over the past three months mirror shifts in the yen.
What Happened: Record Correlation
Pepperstone's JPY index and Bitcoin moved in lockstep since October.
The JPY index measures yen strength against four major currencies: the euro, U.S. dollar, Australian dollar and New Zealand dollar.
Bitcoin peaked in early October and declined over the following two months as the JPY index extended its downtrend, with both assets stabilizing after mid-December. The correlation coefficient of 0.86 represents the highest level ever recorded between the two assets.
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Why It Matters: Portfolio Implications
Bitcoin has lost its function as a portfolio diversifier, transforming from an independent hedge into a proxy for yen exposure. The yen has declined since April 2024 as concerns about fiscal debt sustainability lifted Japanese government bond yields.
Japan's debt-to-GDP ratio stands at 240%, among the highest globally, though domestic investors hold much of that debt.
The Bank of Japan faces a dilemma: raising interest rates increases debt-servicing costs and worsens fiscal pressures, while maintaining low rates risks further yen depreciation.
Some analysts argue the fiscal crisis is already manifesting in currency markets through the weaker yen, with only a potential U.S. recession offering Japan relief. Correlations between cryptocurrencies and traditional assets often prove temporary, according to market observers.
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