Arthur Hayes: Japan's Yen Stabilization Plan Could Inject Trillions in Dollar Liquidity, Boosting Bitcoin and Ethereum

Arthur Hayes has published a new essay arguing that the US Treasury and Japan's Ministry of Finance (MOF) have converged on a single approach to strengthening the yen: channeling newly printed US dollars through the Federal Reserve's currency swap facility. According to Hayes, this mechanism is poised to unleash a substantial wave of dollar liquidity into global markets, and he is positioning Bitcoin ($BTC), gold, and Ethereum ($ETH) to capture the majority of that inflow.

Three Options, One Viable Path

Hayes outlines three potential strategies Japan could employ to lift the yen. The first involves the Bank of Japan aggressively raising interest rates. However, such a move would deepen losses on the central bank's vast portfolio of low-yield bonds and significantly increase Tokyo's debt servicing costs.

The second option would see Japan pressure major institutions such as the Government Pension Investment Fund (GPIF) — the world's largest pension fund — to divest foreign assets and repatriate capital. The problem, Hayes notes, is that this would transform Japan, the largest foreign holder of US Treasuries, into a net seller — a scenario Washington would find unacceptable given how heavily American markets depend on that continued demand.

The third approach, which Hayes identifies as the preferred solution, operates through a different channel. Under this plan, the MOF would repo its Treasury holdings to the Federal Reserve via the FIMA (Foreign and International Monetary Authorities) facility in exchange for dollars, then sell those dollars on the open market to purchase yen. The FIMA repo facility, established in 2021, was designed precisely to give foreign central banks access to dollar liquidity without forcing them to dump Treasuries onto the open market — making it a politically palatable tool for both sides.

The Scale Problem

The critical constraint is capacity. The FIMA facility currently caps each counterparty's outstanding loan at $60 billion. Hayes points out that a recent joint intervention consumed more than $100 billion yet only managed to push the yen approximately 5% higher for a matter of trading days.

Removing that cap and expanding the list of counterparties to include institutions like GPIF would fundamentally alter the equation. Combined, Japan's government and GPIF hold approximately $1.373 trillion in Treasuries that could theoretically be routed through the facility — a figure Hayes compares to the roughly $4 trillion the Federal Reserve created during the COVID-19 pandemic.

Hayes is direct about the implications. "The more they print, the higher Bitcoin goes," he wrote, noting a preference for seeing that liquidity flow into Bitcoin and gold rather than into AI infrastructure spending, which he views as wasteful.

Altcoin Positioning

Among altcoins, Hayes identified $ETH as undervalued relative to other major cryptocurrencies. He also named Ethena's ENA token as a smaller-position bet that he believes could still deliver returns several times over.

Broader Currency Backdrop

Hayes's essay comes amid weeks of analyst commentary highlighting the same currency pressures from various perspectives. The yen's weakness stems in large part from a persistent interest-rate gap: while the Federal Reserve raised rates aggressively in 2022–2023, the Bank of Japan held firm to its ultra-loose monetary policy, keeping Japanese rates near zero and fueling a massive carry trade in which investors borrow cheap yen to buy higher-yielding assets abroad.

Following the Bank of Japan's decision to hold rates at 1% in late July, analyst EGRAG CRYPTO warned that Japan is approaching one of the most perilous monetary crossroads in modern financial history, cautioning that the unwinding of yen-funded trades could trigger forced selling across equities, bonds, and Bitcoin.

That warning followed the yen's slide to its weakest level against the dollar since 1986. Spot On Chain analyst Hupzy noted at the time that this macroeconomic tailwind from currency depreciation would continue to support crypto markets as long as the interest rate differential between Japan and the United States remains wide.

Source: CryptoPotato