Original Author: Arthur Hayes, Co-founder of BitMEX
Original Compilation: Golem, Odaily Planet Daily
Editor's Note: In his latest article, "Yen-quake," Arthur Hayes argues that the Japanese yen is poised to appreciate against the US dollar. The most likely path is for the Japanese government to utilize the FIMA mechanism, pledging its holdings of US Treasuries to the Federal Reserve for repo financing, borrowing US dollars, and then using those dollars to buy yen. Arthur Hayes also suggests this will lead to a surge in US dollar liquidity, subsequently driving up the prices of assets such as Bitcoin and physical gold. He believes that, besides Bitcoin and Ethereum being undervalued currently, ENA also has the potential to rise 5-10 times in the coming months.
Arthur Hayes reveals that he has not yet used all his "ammunition," and now must wait for the subcommittee to be convened by Wash and for the FIMA rules to be amended, paving the way for Japan to leverage the FIMA mechanism to drive yen appreciation. Odaily Planet Daily compiles the core content of the full article as follows, enjoy ~
Over the past decade, the yen has consistently weakened, even becoming extremely weak, driving global asset markets ever higher. But like all good things that benefit wealthy financial asset holders, this situation must eventually end. The yen is the world's most undervalued currency and a focal point of contention between the two major powers, China and the US, as well as the general Japanese electorate. There are three ways to solve the yen problem, but the US Treasury and Japanese politicians favor only one.
I will explain the mechanics of each method to make the yen appreciate and summarize why the last one is the preferred option. Subsequently, I will discuss how to implement this third plan politically. Finally, I will elaborate on why Bitcoin and cryptocurrencies will surge amid a spike in US dollar liquidity (I know this is why you read my "human nonsense").
The three options are as follows:
1. The Bank of Japan (BOJ) raises interest rates significantly, thereby eliminating the interest rate differential between the US dollar and the yen (at least on short-term rates);
2. The government lobbies domestic institutions and public bodies (like the Government Pension Investment Fund, GPIF) to change their investment strategy, selling foreign assets and buying domestic assets;
3. 【Preferred Option】The Ministry of Finance (MOF) pledges its holdings of US Treasuries via repo to the Federal Reserve in exchange for US dollars, then sells those dollars and buys yen on the foreign exchange market.
Before diving into the details, you "degens" should ask yourselves: why discuss yen appreciation now? Countless people over the past few decades have declared that the yen is about to appreciate and end the global carry trade. Two weeks ago, monetary policy officials from the US and Japan conducted a joint exchange rate manipulation, though it was euphemistically called "intervention" officially. If ordinary people did the same thing, it would be "collusion" and "conspiracy"; but when nations are the operators, the terminology changes completely.
US Treasury Secretary Besant has stated that he wants the Fed to increase the counterparty limit for the FIMA repo facility so that Japan's Ministry of Finance can use its vast reserve assets to defend the yen's exchange rate. Japan's Ministry of Finance has also announced it is working with the US to lower the USD/JPY exchange rate. The authorities have made it clear they will change the global currency landscape, so we must pay attention.
Three Plans to Strengthen the Yen
Plans One and Two simply will not work because the relevant parties cannot bear the political and economic consequences of deviating from the established policies of the 2010s.
Plan One: BOJ Raises Interest Rates
Currency trades are often based on interest rate differentials, and the US dollar yields about 2.75% more than the yen. Borrowing yen, converting to dollars, and buying US Treasuries yields a positive carry. Therefore, by arbitrage-free principles, the USD/JPY exchange rate must rise (i.e., the yen depreciates against the dollar) to offset this interest rate differential. The most straightforward way to make the yen appreciate against the dollar is for the BOJ to hike rates, bringing its rate levels in line with other central banks that raised rates post-COVID-19.
To understand the dilemma facing BOJ rate hikes, one must remember: due to over a decade of Yield Curve Control (YCC) policy—printing money to buy bonds to cap the yield on 10-year Japanese Government Bonds (JGBs)—the BOJ has become the largest holder of these "junk" JGBs.
When interest rates rise, bond prices fall; the lower bond prices fall, the larger the unrealized losses for the BOJ. Unlike ordinary investors, the BOJ, which can print unlimited yen, can withstand unlimited yen losses. However, if massive BOJ money printing leads to a global loss of confidence in the yen, to the point where oil, food, medicine, etc., are no longer settled in yen, the situation becomes dire.
Although it has not come to that yet, the BOJ must face this potentially catastrophic prospect. Fearful of seeing losses on its balance sheet, the BOJ has hesitated, only daring to hike rates modestly, watching the market sell off long-term JGBs. The result is a still-weak yen, while inflation from imported energy has severely shaken Japanese society's foundations.
Politicians do not want the BOJ to hike rates because they must issue JGBs to cover the fiscal deficit. If yields rise, debt servicing costs also increase, weakening their ability to "buy" the general public with various government subsidies (often consumption tax cuts).
If the BOJ hiked rates rapidly, causing yen appreciation and thereby raising USD/JPY exchange rate volatility, all investors who borrowed yen to buy global stocks or bonds would be forced to unwind their positions.
Remember July 2024? The yen exchange rate moved from 160 to 140 in just a few trading days. I wrote two articles analyzing this in depth, but in short, newly appointed BOJ Governor Ueda surprised the market by announcing a rate hike and promising more in the future. The market panicked, and speculators who were short yen and long other financial assets unwound their positions. Rumors circulated that several hedge fund PMs were forced to resign, much like Kenny G ending Leopold the AI stock god.
Back then, with the yen hitting 140, both the Nasdaq 100 and Nikkei indices fell over 10%. The BOJ panicked and on August 12th announced it would consider "market conditions" when assessing the future rate hike path, essentially meaning future hikes were shelved. The news weakened the yen, the stock markets bottomed and rebounded, resuming their upward trajectory.
The BOJ moved too fast relative to other central banks in normalizing rates and thus could not withstand the resulting severe market pressure.
Plan Two: "Japan Inc." Sells Foreign Assets to Repatriate Yen
I define "Japan Inc." as the corporate and public sector holders of financial assets.
Albert J. Alletzhauser tells an interesting anecdote in his book "The House of Nomura: The Inside Story of the Japanese Financial Dynasty": After the 1987 stock market crash, the Ministry of Finance instructed Nomura Securities to buy US stocks to support the market. As a private company, Nomura was under no obligation to follow this instruction, but Japan is a society of conformity and collective action, so Nomura complied.
Often, the highest goal of corporations is not shareholder returns but achieving full employment and upholding "national honor" (however defined). If the government advises private companies and individuals to sell foreign assets (mainly US stocks and bonds), sell dollars for yen, and repatriate the funds, "Japan Inc." should comply.
The biggest signal for "Japanese fund repatriation" is the movement of Japan's largest pension fund, the Government Pension Investment Fund (GPIF). The GPIF is managed by a bureaucratic committee whose members are appointed by various government ministries.
In 2014, to align with the massive money-printing policies of "Abenomics," the then-Prime Minister spent years replacing the GPIF's leadership, prompting a vote to increase the portfolio allocation to foreign stocks and bonds. This was crucial because the GPIF manages a portfolio of $1 to $2 trillion. When their investment strategy changed in October 2014, it set off an unstoppable wave—they began selling yen for dollars and buying US stocks and bonds.
This created a structural yen seller, reassuring speculators who could borrow cheap yen to finance various financial assets without worrying about yen appreciation when rolling over or repaying the loan.
I mention the GPIF because its head, Mr. Katayama, recently claimed that, in his view, it was time to adjust GPIF's investment strategy to favor domestic securities over foreign ones. However, bureaucrats within the GPIF were unconvinced and publicly stated they would stick to acting in the best interests of their policyholders. Clearly, as supporters of "Abenomics," they would never endorse shifting focus to Japanese domestic securities.
Just as Abe took control through personnel placements from 2012 to 2014, Prime Minister Takai must do the same. The signal for us investors is clear: The GPIF's investment strategy will eventually change, forcing it to sell hundreds of billions of dollars worth of foreign securities, and the repatriated funds will push up the yen's value.
This process would take years to complete, but it's enough to worry Besant, as it means "Japan Inc.," one of the largest holders of US securities, would shift from being a buyer to a seller. This would destroy the stock and Treasury markets that support the profligate empire of "His Highness America." However, because "His Highness America" guarantees Japan's national security, "Japan Inc." effectively cannot sell its US assets.
The above is not new information. Everyone believes the yen is undervalued, and both the US and Japan want the USD/JPY to appreciate. But if USD/JPY fell from 160 to 90 (its fair value according to purchasing power parity), neither side could bear the resulting losses.
And from the moment Trump's close friend, the "weasel" Wash (who indeed resembles a weasel and is equally cunning and sinister), became Fed Chair, Plan Three was approved.
The 2026 "Treasury-Fed Accord" remains solid; apart from directly financing Besant's short-term Treasury issuance via reverse repo facilities and policy rates below nominal growth rates, Wash also has the authority to implement "Plan Three," permanently adjusting the USD/JPY exchange rate to the level needed to rebalance the global economic system.
Plan Three: Borrowing from the United States
Besant made it clear: Japan's Ministry of Finance and "Japan Inc." should not sell US securities to raise funds to boost the yen. Instead, they should use the FIMA mechanism, pledge their Treasury holdings to the Fed for repo financing, borrow dollars, and then use those dollars to buy yen. There's a small flaw in his plan, which I'll discuss later, but the "boxes and arrows" diagram above illustrates this process. Let's review the process again:
1. Japan's Ministry of Finance pledges Treasuries and obtains a dollar loan from the Fed's FIMA facility;
2. Japan's Ministry of Finance sells dollars and buys yen on the global forex market;
3. Japan's Ministry of Finance reinvests these yen funds domestically, buying Japanese government bonds and stocks.
The main effects of this policy include:
· The Fed provides dollar funds by printing money, and its balance sheet expands in tandem with the increase in outstanding FIMA repo balances;
· USD/JPY exchange rate falls, meaning the yen appreciates;
· Japanese bond yields fall due to yen buying JGBs;
· Japanese stock market rises due to yen buying stocks.
Who is the "sucker"?
1. American taxpayers: Japan owes American taxpayers money that, for political reasons, will never be repaid. As this is purely money printing, it will cause inflation in both financial assets and real goods. The US cannot use its forward operating bases in the Asia-Pacific region against China and Russia to demand repayment of this loan.
2. Anyone short the yen: Once the trend becomes clear, they must unwind their positions immediately. This isn't a huge problem because USD/JPY volatility will decline, allowing yen carry trades to unwind in an orderly fashion over many years.
Why hasn't Plan Three been implemented yet?
The current status is that the FIMA facility has a $60 billion limit on outstanding loans per counterparty. In the recent manipulation of USD/JPY, the US Treasury and Japan's Ministry of Finance deployed over $100 billion and only managed to push the yen up 5%, an effect that lasted just a few trading days. To utilize the FIMA mechanism, this limit must be completely removed, and eligible counterparties must be expanded to include major Japanese corporations and quasi-public investment institutions (like the GPIF).
Who manages the FIMA facility? During the COVID-19 pandemic, the FOMC delegated authority to adjust the workings of the FIMA facility to the Foreign Currency Subcommittee. The committee's voting members include Wash (FOMC Chair), Williams (FOMC Vice-Chair and President of the New York Fed), and Jefferson (Vice-Chair of the Federal Reserve Board). The committee meets as needed, publishes no minutes or voting records, and the outside world only learns of its decisions after the fact.
So, will this committee obey Besant? Absolutely.
Trump and Wash communicate often. Given Besant has clearly articulated how adjusting the USD/JPY exchange rate can reshape global economic balance, Trump obviously fully supports it. Therefore, Trump and Besant will convey instructions to Wash. Wash has already proven himself a slippery, blustering "paper tiger." Under the management of the New York Fed run by Williams, the Fed's balance sheet continues to expand via RMP.
Wash claimed he would listen to the market when making policy, and the market clearly demanded rate hikes as the 2-year Treasury yield was over 0.5% above the Effective Federal Funds Rate, but Wash refused to hike at the July meeting. Instead of immediately making radical, dramatic changes to how the Fed operates, Wash established five special task forces to study how and why the Fed should change. By the time these task forces propose anything, "Godot" will have arrived.
(Odaily Note: An allusion to "Waiting for Godot," Arthur Hayes is satirizing the efficiency of the five task forces.)
Thus, in a short time, Wash has proven to be just another obedient partisan politician, doing what his boss wants. It's like his predecessor, the servile, spineless "softie" Powell, and before that, the "garden gnome grandma" Yellen (who turned into a "bad girl" after becoming Treasury Secretary).
Spread between 2-year Treasury yield and Effective Federal Funds Rate
I don't know when Wash will convene the subcommittee and announce adjustments to the FIMA mechanism, allowing unlimited money printing to manipulate USD/JPY lower, but I am certain it will happen. In fact, I am betting it will happen and am continuously increasing my investment exposure to assets that reflect another massive expansion of the Fed's balance sheet. These assets include Bitcoin, physical gold, and gold miner stocks.
Implementation of the Third Plan Will Drive Up Bitcoin's Price
The more the Fed prints, the higher Bitcoin's price goes. So, is this FIMA trickery enough to be a massive "pump," injecting trillions of dollars worth of money to drive up the price of the assets we hold?
Currently, we focus only on Treasury holdings because Treasuries are the only assets eligible for FIMA collateral. This may change in the future, but let's focus on the currently allowed assets. The two largest holders of US Treasuries are the Japanese government and the GPIF. The Japanese government holds $1.143 trillion in US Treasuries, the GPIF holds $230 billion, totaling $1.373 trillion.
That's a considerable amount. For perspective, during COVID-19, the Fed printed about $4 trillion, evident from the expansion of its balance sheet between 2020 and late 2021.
There is a very clear correlation between the growth of the Fed's balance sheet (white curve) and the surge in Bitcoin's price (golden curve). In previous articles, I speculated that AI infrastructure building is entering a capital-wasting phase. This point is crucial because the Trump administration wants this liquidity to fund domestic US AI capex, not to pump crypto prices.
But I believe that extending credit at this point to AI companies unable to achieve positive returns on capital (whether the hyperscale cloud providers spending massive amounts without genuine profitability or US AI labs unable to profit at "China market token prices") is essentially waste; and Bitcoin's price increase precisely reflects this non-productive capital usage.
Gold's recent sharp rebound from a low point signals that the market would rather direct the coming flood of dollar fiat into monetary financial assets than give money to Altman's money-burning machine OpenAI or Musk's ephemeral space data centers.
Altcoin Frenzy Imminent, Bullish on ENA for 5x Returns
I know you all want to know what we at Maelstrom are doing, but to build investment conviction, one must understand the macro backdrop first.
As I said earlier, when Besant speaks, I listen carefully. If there's one thing he's a master of, it's currency manipulation. Just Google his glorious history of working with Soros, and you'll understand. Implementing this kind of monetary "trick" doesn't require approval from elected politicians or those whose terms are expiring, facing Senate confirmation hearings. Just convene the usually sleepy "Foreign Currency Subcommittee" to tweak the rules, and a gusher of dollar printing can be unleashed.
When I saw the news about Besant calling for FIMA reform, I immediately had a bullish gut feeling. Every macro analyst I follow believes this signals a major turning point in the USD/JPY trend. You must position in advance because they are serious this time.
Money printing is a political decision to address unsustainable economic realities. Politics is always complex, but in the current situation, the Trump administration's intent is clear: they want you to log into your brokerage account and buy financial assets. That's why Besant explicitly signaled to anyone willing to listen where the printed money will start spreading from. I'm listening, and I will do my "duty"—Buy in.
We already hold a lot of Bitcoin, so the next question is who will perform even better?
This isn't an AI stock recommendation article, but if that's your thing, then go ahead and buy the dip. The "Leopold Low" has provided an excellent entry point for AI-related assets. In crypto, the large-cap coin with untapped potential is ETH, the only major coin that failed to break its all-time high in the 2025 rally; moreover, Ethereum will be the security layer for RWA assets.
Next up is an altcoin that's down but could easily see 5 to 10 times gains: Ethena (ENA).
One issue with Ethena is the lack of a buyback mechanism, but given it's still the sixth-largest US dollar stablecoin by circulation, we can ignore that. The problem with ENA is that, due to the coin's price decline causing Bitcoin basis yield to disappear, the yield on holding USDe is barely above US Treasuries. It's not worth taking on centralised exchange counterparty risk and smart contract risk just to hold staked USDe for that yield.
That's why its circulating supply has fallen 75% from its peak, and the ENA token price is down over 90%. But even a small future increase in US dollar liquidity could push Bitcoin's price up, boosting basis yields and causing large inflows into USDe. ENA doesn't need much to break out of its doldrums, so it might be a speculative 5x bet worth considering over the next few months.
I have not yet used all my ammunition. We must wait for Wash to convene the subcommittee and amend the FIMA rules. Keep a close watch; this could happen suddenly when nobody is paying attention. However, gold and the USD/JPY rate should start moving before the policy announcement, after all, large players connected to the Trump administration are likely to position ahead of the news. This happens repeatedly in other asset classes, and gold and forex markets are no exception.
In short, the days of "cheap" yen are numbered.
