Monday is a marked day for forex traders. With London and New York closed for holidays, USD/JPY hovers near 158-159-dangerously close to the 160 level that historically triggers Japanese intervention.
The risk extends to crypto markets. A sudden yen spike could unwind carry trades, sending shockwaves through risk assets.
During Golden Week in May, Japanese authorities executed yen-buying interventions totaling roughly 5 trillion yen ($32 billion). The yen gained over 1%, dropping USD/JPY below 155. Thin liquidity amplifies the effect-same capital, bigger move.
The mechanism: Traders borrow in low-yielding yen to invest in higher-yielding assets. When the yen strengthens, positions unwind violently. These carry trades have found their way into crypto, through both centralized exchanges and DeFi protocols.
August 2024 remains instructive: The BOJ rate hike triggered a carry trade unwind that fueled a broad selloff, crypto included.
If intervention comes Monday, expect sharp USD/JPY movement and broader volatility. Crypto markets, trading 24/7, would be among the first liquid venues for adjustment. No intervention? Markets drift sideways. Action near 160? The price action could be violent.