Surging Bitcoin-Yen Pair Indicates Japan’s Fiat Currency Faces Challenges

Crypto News- Fiat currencies such as the U.S. dollar, Japanese yen, and euro lack tangible backing and derive their worth solely from market sentiment. The recent surge in Bitcoin’s value sheds light on prevailing market sentiments, particularly emphasizing a notable weakness in the perception of the Japanese yen compared to other major fiat currencies.

Consider Monday’s scenario: Bitcoin, often dubbed digital gold, reached an unprecedented high of 7.9 million yen on bitFLYER, a Tokyo-based cryptocurrency exchange. In stark contrast, its value in dollars remained over $52,000, trailing by 32% from its record peak of $69,000 back in November 2021, as reported by TradingView.

Surging Bitcoin-Yen Pair Indicates Japan’s Fiat Currency Faces Challenges

This price disparity underscores the strain placed on the Japanese yen, largely attributed to the Bank of Japan’s persistent quantitative easing measures and resurging inflation rates. While central banks like the Federal Reserve responded to inflationary pressures by aggressively raising interest rates during 2022 and 2023, the BOJ opted to maintain interest rates at zero and continued flooding the market with fiat currency.

Notably, Japan witnessed a significant uptick in core inflation, excluding volatile food and energy prices, reaching 3.1% in 2023 — its highest level since 1982. Inflation tends to erode the purchasing power of fiat currencies, prompting investors to seek refuge in alternative assets like Bitcoin and gold, prized for their store-of-value characteristics.

Consequently, the yen depreciated by 13% against the dollar and 7.5% against other currencies, with an additional 6.4% decline recorded this year alone. Unless the Bank of Japan hastens its planned exit from the ultra-accommodative monetary policy, the premium on Bitcoin denominated in yen may persist, as investors find it relatively more appealing to hold onto the yen over other assets.