Bitcoin trading in Japan increases amidst volatile yen.

Bitcoin trading in Japan increases amidst volatile yen.

The Rise of Bitcoin Trading in Japan Amidst Currency Turbulence

Since the Federal Reserve (Fed) initiated its aggressive interest rate hike campaign in March 2022, the Japanese yen has experienced a sharp depreciation, resulting in one of the most severe exchange rate turbulences on record. Traders from Japan-focused digital asset exchanges have turned to bitcoin (BTC), the world’s leading cryptocurrency, as a hedge against traditional finance.

According to data tracked by Paris-based Kaiko, the share of bitcoin trade volume on Japanese exchanges has increased from 69% to 80% in the first six months of this year. This surge in trading volume amounts to a 60% year-to-date increase, with a total trading volume of $4 billion in June alone. Moreover, the share of the bitcoin-Japanese yen (BTC/JPY) pair in total volume in bitcoin-fiat trading pairs has risen from 4% to 11% this year. This data signals a rising appetite for bitcoin in the Japanese markets.

Bitcoin is widely regarded as digital gold and a hedge against traditional finance and fiat currencies. Unlike fiat currencies, which lack intrinsic or fixed value and are not backed by any tangible asset, bitcoin offers a decentralized and transparent alternative. Citizens from countries plagued by inflation and fiat currency volatility have previously embraced digital assets as a means of preserving their wealth.

Bitcoin’s value has surged by 84% this year, surpassing $30,000. Interestingly, it has been consistently trading at a premium on Japanese exchanges. Dessislava Aubert, a research analyst at Kaiko, notes that on average, BTC traded at a premium ranging between 0.5% and 1.25% on Japanese markets this year.

The depreciation of the yen against the U.S. dollar has been a significant factor driving this trend. The yen has depreciated by 6.3% this year, following a near 14% slide in the previous year. This decline can be attributed to the divergent monetary policy paths adopted by the Federal Reserve and the Bank of Japan. While the Federal Reserve has pursued a tightening stance, the Bank of Japan has maintained its pro-easing stance amidst global tightening. This disparity has further contributed to the decline of the yen.

The chart provided by Kaiko indicates that trading activity on Japan-focused exchanges has picked up faster compared to Korean markets and the Nasdaq-listed Coinbase exchange. This trend is likely to continue, considering that Japan already has a regulatory framework in place, unlike the United States where authorities still rely on enforcement to oversee the industry. Japan recently passed a landmark stablecoin bill aimed at investor protection, further solidifying its position as a favorable jurisdiction for cryptocurrency trading.

The yen’s volatility is expected to persist, as speculation suggests that the Bank of Japan may announce a hawkish tweak to its policy in the near future. This uncertainty, coupled with the rising inflation in Japan, may lead to increased demand for perceived alternatives like bitcoin. Inflation in Japan has been a longstanding issue, with the recent rise reaching a four-decade high, excluding the energy component. As the country grapples with higher inflation after decades of chronic deflation, individuals may seek more robust alternatives to safeguard their wealth.

In conclusion, the Japanese yen’s depreciation and the volatility it has caused in the currency markets have led traders on Japan-focused digital asset exchanges to turn to bitcoin. With its status as digital gold and a hedge against traditional finance, bitcoin has become an attractive option for investors seeking stability in uncertain times. The rise in trading volume on Japanese exchanges and the premium at which bitcoin has been trading signify the growing appetite for digital assets in Japan. As Japan continues to establish a regulatory framework and other jurisdictions grapple with enforcement, the country’s position in the blockchain industry is set to strengthen.

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