Bitcoin Trade in Japan Surges as Yen Becomes Volatile
Since the Federal Reserve (Fed) launched its aggressive rate hike campaign in March 2022, the Japanese yen has depreciated sharply and experienced one of the worst exchange rate turmoil on record.
The volatility is prompting traders from Japan-focused digital asset exchanges to turn to Bitcoin (BTC), the world’s leading cryptocurrency by market value, widely touted as a hedge against traditional finance.
The share of bitcoin trading volume on Japanese exchanges rose from 69% to 80% in the first six months of the year, according to data from Paris-based firm Kaiko. Total trading volume on Japanese exchanges was $4 billion in June, up 60% year-to-date.
The share of the bitcoin-Japanese yen (BTC/JPY) pair in the total volume of bitcoin-fiat trading pairs has also increased from 4% to 11% this year.
”It signals increasing appetite in Japanese markets,” Dessislava Aubert, research analyst at Kaiko, said in an email. Kaiko Japan aggregate numbers are based on data from Bitflyer, Coincheck, Bitbank, Quoine and Zaif.
Bitcoin is widely regarded as digital gold and a hedge against traditional financial and fiat currencies, which are said to lack intrinsic or fixed value and are not backed by tangible assets. Citizens from countries beset by inflation and fiat currency volatility have embraced digital assets before.
Bitcoin is up 84% this year to pass $30,000 while trading at a premium on Japanese exchanges.
“On average this year, BTC has traded at a premium of between 0.5% and 1.25% in Japanese markets,” Dessislava Aubert, research analyst at Kaiko, said in an email.
The yen has depreciated by 6.3% against the US dollar this year, continuing last year’s nearly 14% decline. The divergent monetary policy stances of the Federal Reserve and the Bank of Japan, which has maintained a dovish stance despite global tightening, was primarily responsible for the Yen’s decline.
The chart shows that trading activity on Japan-focused exchanges has increased faster than the Korean markets and the Nasdaq-listed Coinbase exchange.
The trend could continue considering that Japan already has a regulatory framework in place, unlike the US where regulators still rely on industry enforcement. Last month, Japan passed a landmark stablecoin investor protection law.
Yen volatility is likely to continue amid speculation that the Bank of Japan could announce a more hawkish policy change next week.
Finally, the unthinkable happens: Inflation is rising in Japan and a key indicator excluding the energy component recently hit a four-decade high. Higher inflation after decades of chronic deflation could lead to greater demand for perceived alternatives like bitcoin.
