How the Japanese Stock Market Affects Bitcoin

August 2024 started with a decline for the crypto market. One of the reasons for the decline in quotes was the fall of the Japanese stock market, which affected global markets and the crypto industry.

The chief analyst of Bitget Research told how the crypto market is connected with the situation in Japan and what reaction to expect from Bitcoin.

What’s happened

On August 5, 2024, the Japanese stock market suffered its biggest crash since Black Monday in 1987. The Nikkei 225 index fell 13.24% to 31,156.12, the biggest drop in decades. This led to volatility not only in Japan but also in global markets.

The main reasons for the collapse were the Bank of Japan’s decision to raise interest rates to 0.25% and the subsequent strengthening of the yen. The measures were aimed at combating inflation and stabilizing the national currency, but they sharply worsened the prospects for Japanese exporters, which led to a massive sell-off in stocks. As a result, the Nikkei 225 lost 18.2% in just two trading days, which was the worst two-day drop in the index’s history.

As of the time of writing, the Nikkei 225 has recovered to 36,697, the level of early February 2024.

How the situation in Japan affects crypto

Ryan Lee noted that the Japanese stock market has now fully recovered from its decline, and the yen has been trending upward for the week. In the long term, he believes that the relationship between the Japanese stock market and Bitcoin (BTC) is relatively low, but over the past week, the daily correlation has reached 0.74.

Here’s how the rise of the Japanese stock market will impact the crypto market, according to Bitget Research’s chief analyst:

Short term perspective. Market panic is easing. Both the crypto and Japanese markets experienced a liquidity crisis and a significant drop in early August, which led to panic. It was eased by the rise in the Japanese stock market. The changes improved sentiment in the crypto market.

Long term perspective. Dollar liquidity is expected to be released. The significant decline in the Japanese stock market was primarily caused by the Bank of Japan’s rate hike and the high probability of a future rate cut by the Federal Reserve, which led to a reversal in the yen-dollar trading trend. This was caused by the concerted selling of Japanese assets by investors to pay off yen liabilities.

With the Japanese capital market stabilizing, a significant amount of dollar liquidity has been released from the JPY/USD carry trade. The US dollar index has entered a downtrend and the yield on the 10-year US Treasury note has fallen significantly, which is favorable for crypto assets in the medium to long term.

Stay up to date! Subscribe to World Stock Market on Telegram.