US yen intervention puts Bitcoin, risk assets on notice for liquidity flux

The US and Japan recently carried out a rare joint intervention to support the yen, which had plummeted to 40-year lows of 164 per dollar - the first such action since 1998. This move, the first in 28 years, came amid soaring bond yields and apprehensions over the yen carry trade. Joint interventions by Japan and the US could potentially benefit Bitcoin and risk assets, as it could lead to increased global dollar liquidity.

The US Treasury sold euros on behalf of the US, using the Exchange Stabilization Fund, rather than selling dollars directly. US Treasury Secretary Scott Bessent emphasized his intention to meet with Bank of Japan Governor Kazuo Ueda at the upcoming G20 finance ministers meeting. The Bank of Japan, one of the few central banks with access to the Federal Reserve's Foreign and International Monetary Authorities repo facility, could potentially increase yields if the yen interventions escalate, causing borrowing costs to rise for the US government, corporations, and consumers alike.

However, reactions to the joint intervention were mixed, with some economists noting that the US is now bound to coordination with the BoJ in the long-term. This move could have long-term implications for Bitcoin, as the yen carry trade is expected to disintegrate with Japan's shift away from low interest rates. Higher Japanese government bond yields and repatriating Japanese investors looking to capitalize on rising domestic yields also add to the risk of further unwinding of the carry trade.