Last week brought investors an unexpectedly strong mix of events: bitcoin returned above key levels, European stocks revived, and paradoxically, US labor market data helped boost market sentiment. However, beneath the surface, a risk is building that could be far more important for global markets than short-term index gains – the sharply weakening Japanese yen.
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Macroeconomics is playing a peculiar game with investors
The US labor market sent a mixed signal. On one hand, the number of job openings remains high, suggesting companies are still looking for new employees. On the other hand, actual hiring is slowing down, and revisions to previous data show the economy is not as strong as it seemed until recently.
It’s precisely this combination of weaker, but not catastrophic data that suits the markets. Investors began to believe that the Fed will not have sufficient reason for further aggressive tightening of monetary policy. The result was a rise in stocks and bitcoin, which benefited from the prospect of more stable rates and more favorable liquidity.
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The Japanese yen as a silent source of global nervousness
While investor attention was mainly focused on US data, oil and stock indices, the Japanese yen continued to weaken to levels that can no longer be taken as a local problem. While a weak currency helps exporters, it also makes imports of energy, raw materials and technologies more expensive. Japan is thus finding itself in an uncomfortable trap between the need to protect its currency and the risk of intervening in global markets.
If Tokyo starts intervening massively again, it may be forced to sell part of its dollar assets, including US Treasury bonds. This could raise their yields and transfer pressure to stocks as well, especially to expensively valued tech titles. For bitcoin, such an environment could initially mean volatility, but later also support if central banks had to calm the financial system again. That’s precisely why investors and analysts from companies like BITmarkets will be closely watching not only the bitcoin chart in the coming weeks, but also the yen’s development.
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