Since the Federal Reserve (Fed) started its aggressive interest rate hike campaign in March 2022, the Japanese yen has depreciated sharply, registering one of the most severe exchange rate turbulence on record.
The volatility has traders from Japan-focused digital assets exchanges turning to bitcoin (BTC), the world's leading cryptocurrency by market value, widely touted as a hedge against traditional finance.
The share of bitcoin trade volume on Japanese exchanges rose from 69% to 80% in the first six months of the year, according to data tracked by Paris-based Kaiko. The total trading volume on Japanese exchanges was $4 billion in June, amounting to a 60% year-to-date surge.
The share of the bitcoin-Japanese yen (BTC/JPY) pair in total volume in bitcoin-fiat trading pairs has also increased from 4% to 11% this year.
"It signals rising appetite on Japanese markets," Dessislava Aubert, research analyst at Kaiko, said in an email. Kaiko's aggregate figures for Japan represent data from Bitflyer, Coincheck, Bitbank, Quoine, and Zaif.
Bitcoin is widely considered a digital gold and a hedge against traditional finance and fiat currencies, which are said to lack intrinsic or fixed value and are not backed by any tangible asset. Citizens from countries ridden with inflation and fiat currency volatility have previously embraced digital assets.
Bitcoin has surged 84% to over $30,000 this year while trading at a premium on Japanese exchanges.
"On average, BTC traded at a premium ranging between 0.5% and 1.25% on Japanese markets this year," Dessislava Aubert, research analyst at Kaiko, said in an email.
The yen has depreciated 6.3% against the U.S. dollar this year, extending the past year's near 14% slide. The divergent monetary policy paths adopted by the Federal Reserve and the Bank of Japan, which has maintained its pro-easing stance amid global tightening, have been primarily responsible for the yen's decline.
The chart shows trading activity on Japan-focused exchanges has picked up faster than Korean markets and the Nasdaq-listed Coinbase exchange.
The trend might continue considering Japan already has a regulatory framework, unlike the U.S. where authorities still rely on enforcement to oversee the industry. Last month, Japan passed a landmark stablecoin bill for investor protection.
The yen volatility will likely persist as speculation is simmering that the Bank of Japan could announce a hawkish tweak to its policy next week.
Lastly, the unthinkable is happening – inflation is rising in Japan and a key gauge that excludes energy component recently hit a four-decade high. Higher inflation after decades of chronic deflation may see more robust demand for perceived alternatives like bitcoin.