Arthur Hayes New Article: Betting on Yen Appreciation, ENA Could Surge 5 to 10 Times in the Coming Months

Original Title: Yen-quake

Original Author: Arthur Hayes, Co-Founder of BitMEX
Translation: Golem, Odaily Planet Daily

Editor's Note: In his latest article "Yen-quake," Arthur Hayes believes that the yen is about to appreciate against the dollar. The most likely path is for the Japanese government to use the FIMA mechanism to pledge its holding of government bonds to the Federal Reserve for repurchase financing, borrow dollars, and then use these dollars to buy yen. Arthur Hayes also stated that this would lead to a surge in dollar liquidity, causing the prices of assets such as Bitcoin and physical gold to rise. He believes that at this stage, apart from Bitcoin and Ethereum being undervalued, ENA could also see a 5-10x increase in the coming months.

Arthur Hayes revealed that his "bullets" have not all been fired yet, and now we must wait for the Washi Convene Subcommittee to amend the FIMA rules to pave the way for Japan to use the FIMA mechanism to drive the appreciation of the yen. The full core content of the article has been compiled below by Odaily Planet Daily, enjoy~

Over the past decade, the yen has weakened all the way to extreme softness, driving continuous growth in global asset markets. However, like all good things that benefit wealthy financial asset holders, this situation will eventually come to an end. The yen is the most severely undervalued currency globally and is the focus of debate between the two superpowers, the U.S. and China, as well as the ordinary Japanese citizens. To unravel the yen dilemma, there are three paths, but the U.S. Treasury and Japanese politicians only favor one of them.

I will explain the operational mechanisms of each method that prompts the yen to appreciate and summarize why the last one is the preferred solution. Subsequently, I will discuss how to implement this third option at the political level. Finally, I will elaborate on why as dollar liquidity surges, Bitcoin and cryptocurrencies will experience a surge (I know this is also the reason you read these "human gibberish" of mine).

These three methods are as follows:

1. The Bank of Japan (BOJ) significantly raises interest rates to eliminate the spread between the dollar and the yen (at least in terms of short-term rates);

2. The government lobbies domestic institutions and public entities (such as Japan's Government Pension Investment Fund, GPIF) to change their investment strategy, sell off foreign assets, and buy domestic assets;

3. 【Preferred Solution】 The Ministry of Finance of Japan (MOF) pledges its holdings of U.S. Treasury bonds to the Federal Reserve through a repurchase (repo) agreement in exchange for dollars, then sells dollars in the foreign exchange market and buys yen.

Before delving into the details, all you "degen" should ask yourselves: Why discuss the appreciation of the Japanese Yen at this time? Over the past few decades, countless people have claimed that the Yen was about to appreciate and end the global carry trade. Two weeks ago, high-level monetary officials from the US and Japan jointly conducted a coordinated exchange rate intervention, euphemistically referred to as "intervention." The same behavior, if done by ordinary individuals, would be called "collusion" and "conspiracy"; however, when traders become nations, the terminology is completely different.

US Treasury Secretary Benson stated that he hopes the Fed will increase the counterparty limit for FIMA repo operations so that the Japanese Ministry of Finance can use its massive asset reserves to defend the Yen exchange rate. The Japanese Ministry of Finance also announced that it is working together with the US to push down the USD/JPY exchange rate. Authorities have made it clear that they intend to alter the global monetary landscape, and therefore, we must take notice.

Three Scenarios Driving Yen Strength

Scenario one and scenario two are simply not feasible because the parties involved cannot bear the political and economic consequences of deviating from the established policies of the 2010s.

Scenario One: BOJ Rate Hike

Currency trading is often based on interest rate differentials, and the USD currently offers a yield advantage of 2.75% over the Yen. Borrowing Yen, converting it to USD, and purchasing US Treasuries can generate a positive carry trade return. Therefore, based on the no-arbitrage principle, the USD/JPY exchange rate must rise (i.e., the Yen must depreciate against the USD) to offset this interest rate differential. The most direct way to strengthen the Yen against the USD is for the Bank of Japan to raise interest rates to align its rate level with other central banks that have hiked rates post-pandemic.

To understand the challenges facing a BOJ rate hike, it is essential to remember: due to over a decade of implementing Yield Curve Control (YCC) policy, whereby the BoJ has become the largest holder of these "junk" Japanese government bonds by printing money to purchase bonds to cap the 10-year JGB yield.

As rates rise, bond prices fall; the lower the bond prices drop, the greater the BoJ's unrealized losses. Unlike retail investors, the BoJ, with its unlimited ability to print money, can bear unlimited Yen losses. However, if the BoJ's massive money printing causes global confidence in the Yen to wane, leading to the refusal to settle transactions in Yen for oil, food, medicines, etc., the situation becomes critical.

Although this scenario has not yet unfolded, the BoJ must confront this potential calamitous outlook. It is precisely because of the fear of seeing losses on its balance sheet that the BoJ hesitates and only dares to conduct minor rate hikes, watching the market sell off long-term Japanese government bonds. The result is that the Yen continues to depreciate, while the inflation caused by imported energy significantly undermines the foundation of Japanese society.

Politicians do not want the Bank of Japan to raise interest rates because they have to make up for the fiscal deficit by issuing Japanese government bonds. If the yield rises, the debt-servicing cost will also increase, weakening their ability to "bribe" the general public with various government subsidies (usually consumption tax exemptions).

If a rapid interest rate hike by the Bank of Japan causes the yen to appreciate, subsequently increasing the volatility of the USD/JPY exchange rate, then all investors using yen to finance the purchase of global stocks or bonds will be forced to unwind their positions.

Do you remember July 2024? At that time, the yen exchange rate soared from 160 to 140 in just a few trading days. I had written two articles analyzing this in depth, but to put it simply, the newly appointed Governor of the Bank of Japan, Kazuo Uetake, unexpectedly announced a rate hike and committed to further hikes in the future. This caused panic in the market, with speculators who were shorting the yen and longing other financial assets rushing to close their positions. There were rumors that several hedge fund PMs were forced to resign, similar to how Kenny G ended AI stock god Leopold.

When the yen exchange rate hit 140, both the Nasdaq 100 index and the Nikkei index fell by more than 10%. The Bank of Japan panicked and on August 12 announced that when assessing the future rate hike path, they would consider the "market conditions," which effectively meant that the future rate hikes were on hold. Upon this news, the yen weakened, the stock market rebounded from the bottom, and resumed its upward trend.

Compared to other central banks, the Bank of Japan was moving too quickly in the interest rate normalization process, and therefore could not withstand the intense market pressure it caused.

Solution 2: "Japan Inc." Selling Overseas Assets to Repatriate Yen

I define "Japan Inc." as companies and the public sector holding financial assets.

Albert J. Alletzhauser recounted an interesting anecdote in his book "The Nomura Empire: Japan's Legendary Financial Dynasty" about how after the 1987 stock market crash, the Japanese Ministry of Finance instructed Nomura Securities to buy U.S. stocks to support the market. As a private enterprise, Nomura was not obligated to follow this instruction, but Japan is a society that values conformity and collective action, so Nomura ultimately complied.

Often, a company's ultimate goal is not shareholder returns but rather achieving full employment and maintaining "national honor" (whatever that definition may be). If the government suggests that private companies and individuals sell off overseas assets (mainly U.S. stocks and bonds), sell USD to repurchase yen, and repatriate the funds domestically, "Japan Inc." must comply.

The most telling indicator of the "Japanese money flow" is 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 departments.

In 2014, to align with the "Abenomics" policy of massive quantitative easing, the then-Prime Minister, after years of effort, replaced the head of the GPIF, leading to a decision to increase the allocation of overseas stocks and bonds in its investment portfolio. This was crucial because the GPIF manages an investment portfolio ranging from $1 trillion to $2 trillion. In October 2014, when their investment strategy changed, it unleashed an unstoppable trend. They began selling yen to buy dollars, investing in U.S. stocks and bonds.

This move created a structural yen seller, reassuring speculators who could use the cheap yen to finance various financial assets without worrying about the yen appreciating when rolling over or repaying loans.

I mention the GPIF because Mr. Katayama, the head of the Japanese Ministry of Finance, recently stated that, in his view, it was time to adjust the GPIF's investment strategy to be more biased towards domestic securities rather than foreign securities. However, the bureaucrats within the GPIF are not on board and have publicly stated that they will continue to prioritize the best interests of the policyholders. Clearly, given their support for "Abenomics," they will not support a shift in investment focus towards Japanese domestic securities.

Just as Abe controlled the situation through personnel changes from 2012 to 2014, Prime Minister Takii must also take similar measures. For us investors, the signal is crystal clear: the GPIF's investment strategy will eventually change, forcing them to sell hundreds of billions of dollars' worth of foreign securities, leading to a yen appreciation due to money repatriation.

While this process may take several years to complete, it is enough to deeply concern Bessent, as it means that "Japan Inc.," as one of the largest holders of U.S. securities, will shift from a buyer to a seller. This will disrupt the stock and bond markets that "His Highness America" relies on to sustain its profligate empire. However, because "His Highness America" guarantees Japan's national security, "Japan Inc." cannot actually sell its U.S. assets.

The above is not breaking news. Everyone acknowledges that the yen is undervalued, and both the U.S. and Japan hope for a stronger dollar against the yen. However, if the USD/JPY exchange rate drops from 160 to 90 (fair value based on purchasing power parity), both sides will suffer unbearable losses.

And when Trump's close friend, the "Weasel" Wash (who indeed looks like a weasel and acts just as cunning and treacherous), became the Fed chair, the third plan was authorized to start.

The 2026 "Treasury-Fed Accord" remained firmly in place; besides using reverse repo tools and a policy rate below the nominal growth rate to directly fund the Benson-issued short-term Treasury bonds, Wash also had the power to implement "Plan Three," thereby permanently adjusting the USD/JPY exchange rate to the level needed to rebalance the global economic system.

Plan Three: Borrowing from America

Benson made it clear that the Japanese Ministry of Finance and Japanese companies should not raise funds to boost the yen by selling U.S. securities, but should instead use the FIMA mechanism to pledge held government bonds to the Fed for repurchase financing, borrow dollars, and then use those dollars to buy yen. There is a small flaw in his plan, which I will discuss later, but the above "box and arrow" diagram expresses this process. Let's go over this process again:

1. The Japanese Ministry of Finance purchases government bonds and obtains dollar loans from the Fed's FIMA mechanism;

2. The Japanese Ministry of Finance sells dollars and buys yen in the global foreign exchange market;

3. The Japanese Ministry of Finance reinvests these yen funds domestically, buying Japanese government bonds and stocks.

The main impacts of this policy include:

· The Fed will expand its balance sheet in sync with the increase in FIMA repurchase outstanding balance by providing dollar funds through money printing;

· The USD/JPY exchange rate will fall, meaning the yen will appreciate;

· Due to yen purchases of Japanese bonds, Japanese bond yields will decline;

· Due to yen purchases of stocks, the Japanese stock market will rise.

Who is the "sucker" in this scenario?

1. American taxpayers: Japan owes U.S. taxpayers a sum of money that will never be repaid for political reasons. This is purely a money-printing exercise that will trigger inflation at the asset and tangible goods levels. The U.S. cannot demand repayment of this loan and jeopardize its forward operating bases in the Asia-Pacific region against China and Russia.

2. Anyone shorting the yen: Once the trend is clear, they must close their positions immediately. This is not a big problem because the USD/JPY exchange rate volatility will decrease, allowing yen carry trades to be closed out orderly over many years.

Why Hasn't Plan Three Been Implemented Yet?

The current situation is that the FIMA mechanism has a $600 billion limit on each counterparty's unsettled loans. In the recent action manipulating the USD/JPY exchange rate, the US Treasury and the Japanese Ministry of Finance injected over $1 trillion but only managed to push the yen up by 5%, and this appreciation effect only lasted for a few trading days. To utilize the FIMA mechanism, this limit must be completely removed, and the range of eligible counterparties must be expanded to include large Japanese corporations and quasi-public investment institutions (such as GPIF).

Who manages the FIMA mechanism? During the COVID-19 pandemic, the Federal Open Market Committee (FOMC) delegated the authority to adjust the operation of the FIMA mechanism to the Foreign Currency Subcommittee. The voting members of this subcommittee include Powell (FOMC Chair), Williams (FOMC Vice Chair and NY Fed President), and Jefferson (Fed Board Vice Chair). The subcommittee is able to convene meetings as needed without releasing minutes or disclosing voting records, and the outside world can only learn of its decisions.

So, does this subcommittee take orders from Bernhardt? The answer is definitely yes.

Trump and Powell frequently communicate, and given that Bernhardt has clearly outlined how to reshape global economic balance by adjusting the USD/JPY exchange rate, Trump is obviously fully supportive. Therefore, Trump and Bernhardt will convey instructions to Powell. Powell has previously proven to be a slick and ostentatious "paper tiger." Under Williams' leadership at the NY Fed, the Fed's balance sheet continues to expand through the RMP.

Powell has claimed that he listens to market opinions when formulating policies, and the market clearly demands a rate hike as the two-year Treasury yield is more than 0.5% above the effective federal funds rate, but Powell rejected a rate hike at the July meeting. Powell did not immediately undergo a thorough and drastic reform of the Fed's operations but established five special workgroups to specifically study how and why the Fed should reform. Unfortunately, before these workgroups came up with any suggestions, "Godot" has already appeared.

(Odaily Note: The reference is from "Waiting for Godot," where Arthur Hayes is satirically criticizing the efficiency of the five workgroups.)

Therefore, Powell has already proven in a short time that he is just another party politician who follows orders. This is like his predecessor, the obedient and spineless "softie" Powell, and even earlier, the "garden gnome granny" Yellen (who has since become a "bad girl" after becoming Treasury Secretary).

Two-Year Treasury Yield Spread vs. Fed Funds Effective Rate

I do not know when Powell will convene the committee and announce an adjustment to the FIMA facility to allow unlimited money printing to manipulate the USD/JPY exchange rate lower, but I am confident it will happen. In fact, I bet it will happen, and I am actively increasing my investment exposure to assets that can reflect the impact of another massive expansion of the Fed's balance sheet. These assets include Bitcoin, physical gold, and shares of gold miners.

Third Round Implementation Will Boost Bitcoin Price

As long as the Fed prints more money, the Bitcoin price goes up. So, could this FIMA trick be a huge "pump," injecting trillions of dollars' worth of funds to boost the prices of assets we hold?

For now, we are only looking at the amount of Treasury securities held, as Treasuries are the only assets eligible for FIMA collateral. The situation may change in the future, but we are focusing on the assets currently allowed to be used with this tool. The two entities with the largest holdings of Treasuries are the Japanese government and the GPIF. The Japanese government holds $1.143 trillion in U.S. Treasuries, and the GPIF holds $230 billion, totaling $1.373 trillion.

This is a considerable amount. To put this scale into perspective, during the COVID-19 pandemic, the Fed printed about $4 trillion, as seen in the expansion of its balance sheet from 2020 to the end of 2021.

The significant growth in the Fed's balance sheet (white curve) is clearly correlated with the soaring Bitcoin price (gold curve). In a previous article, I speculated that the development of AI was entering a phase of capital waste. This assertion is crucial because the Trump administration wanted this liquidity to be used to drive domestic AI capital expenditures in the United States, rather than to boost cryptocurrency prices.

However, I believe that extending credit at this point to AI companies that cannot achieve positive capital returns (whether it is the overcapitalized but fundamentally unprofitable mega-scale cloud service providers or U.S. AI labs that cannot be profitable at "China market token prices") is essentially wasteful; and the rise in Bitcoin price precisely reflects this non-productive use of capital.

The recent sharp rebound in the price of gold from a interim low sends us a signal: the market prefers to guide the upcoming US dollar fiat flood into monetary financial assets rather than send money to the "money-burning machine" OpenAI, or Musk's ethereal space data centers.

Altcoin Frenzy Coming Soon, Bullish on ENA with 5x Return

I know you all want to understand what we are specifically doing in Maelstrom, but to build investment conviction, you must first understand the macro backdrop.

As I mentioned earlier, when Bertrand speaks, I listen attentively. If there's one thing he excels at, it's currency manipulation. Just Google his illustrious record working with Soros, and you'll understand. Implementing this kind of "trick" in currency manipulation doesn't require the approval of elected officials or those facing Senate confirmation hearings nearing the end of their term. Just convene that usually sleepy "Foreign Exchange Committee" to tweak the rules, and you'll see a surge in dollar printing.

When I saw the news about Bertrand calling for a reform of the FIMA mechanism, I immediately had a bullish intuition. Every macro analyst I follow believes this signals a significant turning point in the USD/JPY exchange rate. You have to position yourself early because this time they're serious.

Printing money is a political decision made to address an unsustainable economic reality. Politics is always convoluted, but in the current situation, the intent of the Trump administration is clear: they want you to log into your brokerage account and buy financial assets. That's why Bertrand has sent a clear signal to all willing to listen, indicating where the printed money will start to flow. I'm listening, and I will fulfill my "duty" – Buy in.

We already hold a significant amount of Bitcoin, so the next question is who will outperform?

While this is not an AI stock recommendation article, if you are interested, feel free to bottom fish. "Leopold Low" has already provided you with an excellent entry point for AI-related assets. Speaking of cryptocurrency, the undiscovered large-cap potential stock is ETH, the only mainstream coin that failed to reach a new all-time high in the 2025 market cycle; furthermore, Ethereum will be the security layer for RWA assets.

Next, let's introduce a low-performing but potentially easy 5- to 10-fold gainer altcoin, Ethena (ENA).

One issue with Ethena is the lack of a buyback mechanism; however, considering it is currently the sixth-largest USD stablecoin by circulation, this can be overlooked. The issue with ENA is that, due to the coin's price drop causing the Bitcoin basis yield to disappear, holding USDe only offers a yield slightly higher than U.S. Treasuries. It is not worthwhile to assume counterparty risk with a centralized exchange and smart contract risk to hold a collateralized USDe.

As a result, its circulating supply has dropped by 75% from its peak, and the ENA token price has plummeted by over 90%. But even if there is only a slight increase in USD liquidity in the future, it can drive the Bitcoin price up, increasing the basis yield and prompting a significant inflow of funds into USDe. ENA does not require many conditions to break out of its slump; therefore, in the coming months, it may be a speculative option worth considering for a quick 5x gain.

I haven't fired all my bullets yet; we must wait for Powell to convene the subcommittee and amend the FIMA rule. Stay tuned, as this event may suddenly occur when no one is paying attention. However, the price of gold and the USD/JPY exchange rate are likely to start fluctuating before the policy announcement. Indeed, large players closely connected to the Trump administration are likely to position themselves ahead of the news release. This situation is not uncommon in other asset classes, and gold and forex markets are no exception.

In conclusion, the days of the "cheap" yen are coming to an end.

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