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
Original Translator: Golem, Odaily Planet Daily

Editor's Note: In his latest article "Yen-quake," Arthur Hayes predicts a looming appreciation of the Japanese Yen against the US Dollar. The most likely path, in his view, involves the Japanese government utilizing the FIMA mechanism to pledge its held government bonds to the Federal Reserve for repurchase financing, borrowing US Dollars, and then using these Dollars to buy Yen. Hayes also suggests that this move will lead to increased Dollar liquidity, causing the prices of assets such as Bitcoin and physical gold to rise. He believes that at the current stage, besides Bitcoin and Ethereum being undervalued, Ena is also expected to rise 5-10 times in the coming months.

Hayes revealed that not all of his "bullets" have been fired yet. What is awaited now is the Washi convened committee and the modification of the FIMA rules to pave the way for Japan to use the FIMA mechanism to drive the appreciation of the Yen. The core content of the full article is compiled below by Odaily Planet Daily, enjoy~

Over the past decade, the Japanese Yen has consistently weakened to the point of extreme softness, propelling the continuous rise of 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 a focal point of debate between the United States, China, and the Japanese electorate. To unravel the enigma of the Yen, there are three approaches, but only one is favored by the US Treasury and Japanese politicians.

I will explain the operation of each method that promotes Yen appreciation and summarize why the last method is the preferred solution. Subsequently, I will discuss how to implement this third approach at a political level. Finally, I will elaborate on why, as Dollar liquidity surges, Bitcoin and cryptocurrencies will experience a massive surge (I know this is also the reason you read through my "human gibberish").

These three approaches 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 persuades domestic institutions and public entities (such as the Government Pension Investment Fund (GPIF) of Japan) to change their investment strategies, selling off foreign assets and buying domestic ones;

3. 【Preferred Solution】 The Japanese Ministry of Finance (MOF) pledges its held US Treasury bonds to the Federal Reserve via repurchase (repo) to exchange for Dollars, subsequently selling Dollars in the foreign exchange market and buying Yen.

Before diving into the details, all you "degen" folks in the crypto world should ask yourselves: Why discuss the yen's appreciation at this time? Over the past few decades, countless individuals have claimed that the yen was about to appreciate and bring an end to the global carry trade. Two weeks ago, high-ranking currency officials from the U.S. and Japan jointly conducted a round of exchange rate manipulation, euphemistically referred to as "intervention." The same behavior, if done by an ordinary person, would be called "collusion" and "conspiracy"; however, when the players are countries, the terminology is entirely different.

U.S. Treasury Secretary Benson declared that he hopes the Fed will increase the trading counterpart limit for the FIMA repo facility so that the Japanese Ministry of Finance can use its massive asset reserves to defend the yen's exchange rate. The Japanese Ministry of Finance also announced that they are working hand in hand with the U.S. to push down the dollar-to-yen exchange rate. Authorities have made it clear that they will alter the global monetary landscape, and thus, we must take this seriously.

Three Scenarios Driving Yen Strength

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

Scenario One: BOJ Rate Hike

Currency trading often relies on interest rate differentials, and the U.S. dollar's yield is 2.75% higher than the yen's. Borrowing yen, converting it to dollars, and purchasing U.S. Treasuries can bring about a positive carry trade return. Therefore, based on the no-arbitrage principle, the dollar-to-yen exchange rate must rise (i.e., yen depreciation against the dollar) to offset this interest rate differential. The most direct way to strengthen the yen against the dollar is for the Bank of Japan (BOJ) to raise interest rates, aligning its rate level with central banks in other countries that have been raising rates post-COVID-19.

To understand the dilemma facing the BOJ in raising rates, one must remember that due to the Yield Curve Control (YCC) policy implemented over the past decade—whereby the central bank limits the yield on 10-year Japanese government bonds by printing money to purchase bonds—the BOJ has become the largest holder of these "junk" JGBs.

As rates rise, bond prices fall; the lower bond prices go, the greater the BOJ's unrealized losses. Unlike regular investors who can print unlimited amounts of yen, the BOJ can withstand unlimited yen losses; however, if massive money printing by the BOJ erodes global confidence in the yen, leading to the rejection of yen settlement for transactions in oil, food, pharmaceuticals, etc., the situation becomes critical.

Although this stage has not yet been reached, the BOJ must confront this potential catastrophic scenario. It is precisely because of the fear of seeing losses on its balance sheet that the BOJ hesitates and only dares to carry out minimal rate hikes, watching as the market sells off long-term JGBs. As a result, the yen continues to depreciate, and the inflation caused by imported energy significantly impacts 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 cost of servicing the debt 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, thereby 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 jumped from 160 to 140 in just a few trading days. I wrote two in-depth articles on this, but in short, the newly appointed Bank of Japan Governor Kazuo Ueda unexpectedly announced a rate hike and pledged further hikes in the future. This caused a market panic, leading to the closure of positions by speculators who were short on the yen and long on other financial assets. There were rumors at the time that several hedge fund PMs were forced to resign, just like Kenny G ended AI stock god Leopold.

When the yen exchange rate touched 140, both the Nasdaq 100 and the Nikkei Index fell by more than 10%. The Bank of Japan panicked and on August 12 announced that it would consider "market conditions" when assessing the future rate hike path, essentially meaning that future hikes had been put on hold. As soon as this news came out, 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 too aggressive in the interest rate normalization process, and therefore could not withstand the intense market pressure it caused.

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

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

Albert J. Alletzhauser, in his book "The Nomura Empire: Inside Look at the Legendary Japanese Financial Dynasty," tells an interesting story: after the 1987 stock market crash, the Japanese Ministry of Finance instructed Nomura Securities to buy US stocks to support the market. As a private enterprise, Nomura had no obligation to comply with this directive, but Japan is a society that values conformity and collective action, so Nomura eventually complied.

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

The most significant indicator that can signal the "Japan Funding Reversal" 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 money printing, the then Prime Minister, after years of effort, replaced the head of the GPIF, leading to a vote to increase the allocation of foreign equities and bonds in the investment portfolio. This was crucial because the GPIF manages an investment portfolio as large as $1 trillion to $2 trillion. In October 2014, when their investment strategy changed, it triggered an unstoppable wave, as they began selling the yen for dollars and buying 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 during loan roll-overs or repayments.

I mention the GPIF because Japan's Ministry of Finance's Mr. Katayama recently stated that, in his view, it is time to adjust the GPIF's investment strategy to tilt more 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 insured. Clearly, given their support for "Abenomics," they will not support a shift in investment focus to 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 clear: the GPIF's investment strategy will eventually change, forcing it to sell hundreds of billions of dollars' worth of foreign securities, and the fund inflow will boost the yen's exchange rate.

Although this process may take several years to complete, it is enough to deeply worry Benson, 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 crush the stocks and treasury markets that "His American Highness" relies on to support his profligate empire. However, because "His American Highness" guarantees Japan's national security, "Japan Inc." is effectively unable to sell its U.S. assets.

The above is not groundbreaking news. Everyone agrees that the yen exchange rate is at a low, and both the U.S. and Japan hope for a stronger dollar against the yen. However, if the dollar-yen exchange rate drops from 160 to 90 (fair value based on purchasing power parity), both sides will incur unbearable losses.

And when Trump's close friend, the "Ferret" Wash (who indeed looks like a ferret and acts just as cunning and sly), took office as the Fed Chair, the third option was greenlit.

The 2026 "Treasury-Fed Accord" remained firmly in place; in addition to using reverse repo operations and a policy rate below the nominal growth rate to directly fund the short-term Treasuries issued by Bezent, Wash was also empowered to implement "Option Three," permanently realigning the USD/JPY exchange rate to the level needed to rebalance the global economic system.

Option Three: Borrowing from America

Bezent was clear: the Japanese Ministry of Finance and Japanese companies should not raise funds to support the yen by selling U.S. securities but should instead use the FIMA mechanism to pledge their holdings of JGBs to the Fed for repo financing, borrow dollars, and then buy yen with those dollars. There was a small flaw in his plan, which I will discuss later, but the above "box and arrow" diagram illustrates this process. Let's recap this process:

1. The Japanese Ministry of Finance buys JGBs and gets dollar loans from the Fed's FIMA facility;

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

3. The Japanese Ministry of Finance reinvests these yen funds domestically by purchasing JGBs and stocks.

The key impacts of this policy include:

· The Fed expanding its balance sheet through money printing to provide dollar funding, in sync with the increasing FIMA repo outstanding balance;

· A decline in the USD/JPY exchange rate, meaning the yen appreciates;

· Japanese bond yields decrease due to yen purchases;

· Japanese stock market rises due to yen stock purchases.

Who is the "chump" in this scenario?

1. U.S. taxpayers: Japan owes U.S. taxpayers a sum of money that will never be repaid for political reasons. This is essentially a money-printing exercise, leading to inflation in financial assets and real goods. The U.S. cannot demand repayment of this loan and risk using 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 deal as the USD/JPY exchange rate volatility will decrease, allowing yen carry trades to be unwound orderly over several years.

Why Hasn't Plan Three Been Implemented Yet?

The current situation is that the FIMA mechanism has a $600 billion limit on outstanding loans to each counterparty. 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 appreciate the yen 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 is managing the FIMA mechanism? During the COVID-19 pandemic, the Federal Open Market Committee (FOMC) delegated the power 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 can convene meetings as needed without releasing meeting minutes or disclosing voting records, with the outside world only learning about its decision results.

So, does this subcommittee obey Bassett? The answer is absolutely yes.

Trump and Powell frequently communicate, and considering that Bassett has clearly outlined how to reshape global economic equilibrium by adjusting the USD/JPY exchange rate, Trump is evidently fully supportive of this. Therefore, Trump and Bassett will convey instructions to Powell. Powell has previously proven himself to be a slippery and bluffing "paper tiger." Under Williams's leadership at the NY Fed, the Fed's balance sheet continues to expand through 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 already more than 0.5% above the federal funds rate. However, Powell rejected a rate hike at the July meeting. Rather than immediately undergoing a thorough and drastic reform of the Fed's operation, Powell established five special working groups dedicated to studying how and why the Fed should reform. It's feared that by the time these groups make any recommendations, "Godot" will have already appeared.

(Odaily Note: Reference from "Waiting for Godot," Arthur Hayes is satirizing the efficiency of the five working groups.)

Therefore, Powell has already proven in a short time that he is just another partisan politician who only follows orders. This is just like his predecessor, the meek and spineless "yes-man" 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 to Fed Funds Effective Rate

I do not know when Powell will convene the Committee on Gold, announcing an adjustment to the FIMA mechanism to allow unlimited money printing to manipulate the USD/JPY exchange rate lower, but I am sure it will happen. In fact, I bet it will definitely happen, and I am steadily increasing exposure to assets that can reflect the impact of a massive expansion of the Fed's balance sheet once again. These assets include Bitcoin, physical gold, and gold mining stocks.

Third Avenue Implementation Will Boost Bitcoin Price

The more the Fed prints, the higher the price of Bitcoin. So, is this FIMA trick enough to be a massive "pump," injecting trillions of dollars' worth of funds to drive up the price of assets we hold?

Currently, we focus only on the amount of Treasury holdings because Treasuries are the only assets eligible for FIMA collateral. The future may change, but for now, let's focus on the assets this tool currently allows. The two entities with the largest Treasury holdings 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 significant amount. To put this scale into perspective, we can look at the situation during the COVID-19 pandemic, where the Fed printed about $4 trillion, as evidenced by the expansion of its balance sheet from 2020 to the end of 2021.

There is a clear correlation between the growth of the Fed's balance sheet (white line) and the surge in Bitcoin price (gold line). In a previous article, I speculated that the construction in the AI field is entering a phase of capital wastage. This assertion is crucial because the Trump administration wanted this liquidity to be used to drive domestic AI capital spending in the U.S., not to drive up cryptocurrency prices.

However, I believe that providing credit to AI companies that cannot achieve a positive capital return at this time (whether they are heavily invested but cannot truly turn a profit mega-cloud service providers or U.S. AI labs unable to profit at the "China Market Token Price") 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 key support level sends a signal: the market would rather channel the upcoming USD fiat deluge into monetary financial assets than hand money over to the "money-burning machine" OpenAI or Musk's ethereal space data centers.

Altcoin Rally Imminent, ENA Poised for 5x Returns

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

As I mentioned earlier, when Bennett speaks, I listen. If there's one thing he excels at, it's currency manipulation. Just google his illustrious track record working with Soros, and you'll understand. This type of monetary maneuver, these "tricks," don't require approval from elected officials or nods from those facing Senate confirmation hearings as their terms near. Just summon that usually sleepy "Foreign Exchange Committee" to tweak the rules a bit, and you'll see the dollar printing press go brrr.

When I saw the news about Bennett's call to reform the FIMA mechanism, I immediately had a bullish intuition. Every macro analyst I follow believes this heralds a significant turning point in the USD to JPY exchange rate. You have to position yourself ahead of time because this time they mean business.

Printing money is a political decision made to address an unsustainable economic reality. Politics are always complex, but in the current context, the intent of the Trump administration is clear: they want you to log into your brokerage account and buy financial assets. That's why Bennett has sent a clear signal to everyone willing to listen, indicating where the printed bills will start to flow from. 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're into that, feel free to bottom-fish. "Leopold's Lows" have already provided you with an excellent entry point into AI-related assets. Speaking of cryptocurrency, the undiscovered gem in the large-cap potential space is ETH, the only mainstream coin that failed to break its all-time high in the 2025 bull run; additionally, Ethereum will serve as the security layer for RWA assets.

Next up is an undervalued altcoin poised to easily achieve 5 to 10x gains: Ethena (ENA).

One of Ethena's issues 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 a price drop, the Bitcoin basis yield has disappeared, and holding USDe now offers a yield barely higher than U.S. Treasury bonds. It is simply not worth taking on the counterparty risk of a centralized exchange and the smart contract risk to hold a collateralized USDe.

As a result, its circulating supply has decreased 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 up the price of Bitcoin, increase the basis yield, and result in a significant influx 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 Wash to convene the subcommittee and amend the FIMA rule. Stay tuned, as this event may suddenly occur when no one is paying attention. However, gold and the USD/JPY exchange rate should start fluctuating even before the policy announcement, as those closely tied to the Trump administration are likely to position themselves ahead of the news. This situation is common in other asset classes, and gold and the forex market are no exception.

In short, the days of the "cheap" yen are about to end.

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