It seems that Bitcoin’s (BTC) impending death cross—a traditionally bearish technical pattern—is once again proving to be a contrary indicator, hinting at renewed bullish momentum, just as it did in September 2023.
This is largely due to a significant statement made early Wednesday by Shinichi Uchida, the influential deputy governor of the Bank of Japan (BOJ). Uchida indicated that the central bank would refrain from hiking borrowing costs during periods of market instability, which reduces the likelihood of a continued unwinding of “yen carry trades” and the associated risk aversion affecting assets like Bitcoin.
“As we observe sharp volatility in both domestic and international financial markets, it’s essential to maintain the current level of monetary easing for the time being,” Uchida said during a speech to business leaders in Hakodate, Hokkaido.
All else being equal, the BOJ’s latest stance suggests limited downside risk for cryptocurrencies, even as Bitcoin’s death cross—defined by the 50-day simple moving average (SMA) crossing below the critical 200-day SMA—approaches.
Bitcoin remained strong following Uchida’s remarks, briefly surpassing the $57,300 mark as the Japanese yen (JPY) depreciated from 145 to 148 per U.S. dollar (USD). Japan’s Nikkei index rose by 4%, signaling a risk-on environment, while futures linked to the S&P 500 climbed 0.8%. “The BOJ has effectively established a ‘Yen put,’ and the Nikkei will be driving the Nasdaq and S&P back to their pre-selloff levels,” noted Global Macro, a pseudonymous market observer on X.
The yen carry trade involves borrowing cheaply in yen and investing in higher-yielding currencies like the Mexican peso, as well as risk assets. This strategy has been popular in recent years due to the BOJ’s zero-interest-rate policy, while other central banks, including the Fed, have rapidly raised rates to combat inflation.
However, last Wednesday, the BOJ raised rates, abandoning its ultra-easy monetary policy for the first time in 17 years. This hawkish move sparked an unwinding of carry trades, leading to broad risk aversion. Bitcoin plummeted from $66,000 to $50,000 in just five days leading up to Monday.
“By July 16th, equity markets and many other risky asset markets had peaked. For various reasons, these markets began to sell off. As the sell-off continued, recent entrants into the YCT [yen carry trade] saw their assets falling, which is almost always the driver of unwinds. But worse, the Yen began rallying slowly, initiating the unwind,” explained Andy Constan, CEO of Damped Spring Advisors, in a detailed yen carry trade analysis on X.
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“The unwind of the trade leads to inelastic price movements as investors rush to buy Yen and sell risky assets. This also impacts a larger group of leveraged investors who have no yen exposure at all, leading to margin calls,” Constan added.