Bitcoin and the Japanese yen are showing an unprecedented level of correlation

Bitcoin and the Japanese Yen: A Growing Connection

Recently, Bitcoin (BTC) traders have found it increasingly important to monitor the Japanese yen (JPY) alongside traditional benchmarks like the dollar index. Over the past three months, the relationship between BTC and the yen has reached unprecedented levels.

According to TradingView, the 90-day correlation coefficient between Bitcoin and Pepperstone’s JPY index has soared to 0.86, marking an all-time high.

This strong correlation indicates that Bitcoin and the yen have been moving in near lockstep, with approximately 73% of Bitcoin’s price fluctuations over the last 90 days reflecting changes in the yen. This percentage, known as the coefficient of determination, is calculated by squaring the correlation coefficient and represents how closely the two assets move together.

Pepperstone’s JPY Index (JPYX) is a contract for difference (CFD) that tracks the performance of the Japanese yen against four major currencies: the euro, US dollar, Australian dollar, and New Zealand dollar.

The close alignment between Bitcoin and the yen suggests that Bitcoin, once seen as an independent asset, is now heavily influenced by movements in the Japanese currency. Over the past three months, Bitcoin’s price has tended to rise and fall in tandem with the yen, reducing its effectiveness as a portfolio diversifier and making it more of a direct wager on the yen’s fortunes than a unique “digital gold” hedge.

However, it’s important for traders to remember that such correlations between cryptocurrencies and traditional financial assets, including stocks and currencies, are often temporary.

BTC and JPY Daily Price Trends

Throughout early October, Bitcoin reached a peak before experiencing significant declines over the next two months, mirroring the continued downward trend of the JPY index. Both assets saw their sell-offs slow after mid-December.

The yen has been weakening since April of the previous year, largely due to concerns about Japan’s fiscal sustainability, which have pushed government bond yields higher. With a debt-to-GDP ratio of 240%, Japan stands among the world’s most indebted countries, though much of this debt is held domestically.

This high level of debt puts Japan’s central bank in a difficult position: increasing interest rates would raise the cost of servicing debt and worsen fiscal challenges, while keeping rates low could trigger a further decline in the yen’s value.

Some analysts believe that the fiscal crisis is already being reflected in currency markets through the yen’s sharp depreciation, and that only a possible U.S. recession might provide Japan with some relief.