BOJ Governor Uchida downplays rate hike concerns amid market volatility.
Following Uchida’s statements, the anti-risk yen is falling, while BTC and stock futures are rising.
Renewed risk appetite points to a possible death cross bear trap in Bitcoin.
Bitcoin’s {{BTC}} impending death cross appears to be living up to its reputation as a contrarian indicator, a bearish technical pattern that could herald renewed bullish price action as it did in September 2023.
This is because earlier on Wednesday, the influential governor of the Bank of Japan (BOJ), Shinichi Uchida, said the central bank would not increase borrowing costs when markets are unstable, and this comes amid a continued reduction in the practice of “yen carry trades” and the resulting weakening of risk aversion in risky assets, including bitcoin.
“Current levels of monetary easing need to be maintained for a while as we see sharp volatility in domestic and overseas financial markets,” Uchida told business leaders in Hakodate, Hokkaido.
All else being equal, the BOJ’s latest statements suggest a limited downside for the cryptocurrency, while a death cross is imminent, characterized by the cryptocurrency’s 50-day simple moving average (SMA) moving below its pivotal 200-day SMA.
Bitcoin traded sharply after Uchida’s comments, briefly breaching the $57,300 level as the Japanese yen (JPY) fell to 148 against the U.S. dollar (USD) from 145. Japan’s Nikkei stock index rose 4%, signaling a risk reset, and futures tied to the S&P 500 rose 0.8%.
“BOJ issues ‘Yen put’ order, pushes Nikkei, Nasdaq and S&P to pre-sale levels,” said Global Macro, a market watcher at X.com.
Yen carry trading involves taking out loans in cheap yen and investing in high-yielding currencies like the Mexican peso and risk assets. This strategy has become quite popular in recent years because the Bank of Japan has kept interest rates at zero while others, including the Fed, have rapidly increased borrowing costs to combat inflation.
But last Wednesday, Japan’s central bank raised interest rates and abandoned its ultra-easy monetary policy for the first time in 17 years. The hawkish move caused carry trades to retreat, sparking broad-based risk aversion. BTC fell from $66,000 to $50,000 in five days through Monday.
“By July 16, stock markets and many other risky asset markets had peaked. For some reason, these asset markets began to sell off. As the sell-off continued, new entrants to YCT [yen carry trade] “They saw their holdings fall, and to be clear, that’s almost always the driver of pullbacks. But worse, the yen started to slowly recover. That was the beginning of the pullback,” said Andy Constan, CEO of Damped Spring Advisors, in a detailed explanation of yen carry trades on X.
“The pullback in trading results in an inelastic flow of price action to buy yen and sell risky assets. The sale of risky assets also impacts a much larger group of leveraged investors who have no yen exposure and also receive margin calls,” Constan added.