Original text by Arthur Hayes
Translated by Odaily Planet Daily Golem (@web3_golem)
Editor's Note: In his latest article "Yen-quake", Arthur Hayes believes that the yen is about to appreciate against the US dollar. The most likely path is for the Japanese government to use the FIMA mechanism, pledging its held US Treasuries to the Federal Reserve for repurchase financing, borrowing US dollars, and then using those dollars to buy yen. Arthur Hayes also states that this will lead to a surge in dollar liquidity, which in turn will drive up the prices of assets such as Bitcoin and physical gold. He believes that at this stage, besides Bitcoin and Ethereum being undervalued, ENA is also expected to rise 5-10 times in the coming months.
Arthur Hayes reveals that his "bullets" are not all spent yet; what he must wait for now is for Warsh to convene a subcommittee and modify the FIMA rules, paving the way for Japan to use the FIMA mechanism to push the yen higher. Odaily Planet Daily has compiled the core content of the full text as follows, enjoy~
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Over the past decade, the yen has weakened and become extremely soft, driving global asset markets higher. But like all good things that favor holders of financial assets, this situation will eventually end. The yen is the most undervalued currency in the world, and it is the focus of debate between the two major powers, China and the US, as well as ordinary Japanese voters. There are three ways to solve the yen puzzle, but the US Treasury and Japanese politicians favor only one of them.
I will explain the mechanics of each method to appreciate the yen, and summarize why the last one is the preferred option. Then, I will explore how to implement this third option at the political level. Finally, I will elaborate on why Bitcoin and cryptocurrencies will surge as dollar liquidity increases (I know this is also why you read my "human nonsense").
The three options are as follows:
- The Bank of Japan (BOJ) significantly raises interest rates, thereby eliminating the interest rate differential between the dollar and the yen (at least in short-term rates);
- The government lobbies domestic institutions and public agencies (such as the Government Pension Investment Fund, GPIF) to change investment strategies, selling overseas assets and buying domestic assets;
- [Preferred option] The Ministry of Finance (MOF) pledges its US Treasury holdings to the Federal Reserve via repurchase (repo) agreements in exchange for dollars, then sells dollars and buys yen in the foreign exchange market.
Before diving into the details, you "crypto degens" should ask yourselves: why discuss yen appreciation at this time? Over the past decades, countless people have asserted that the yen would appreciate and end the global carry trade. Two weeks ago, monetary policy officials from the US and Japan implemented a joint exchange rate manipulation, of course euphemistically called "intervention". The same behavior, if done by ordinary people, would be "collusion" and "conspiracy"; but when the operators are nations, the terminology is completely different.
US Treasury Secretary Bessent declared that he hopes the Federal Reserve will raise the counterparty limit for the FIMA repo facility, so that the Japanese Ministry of Finance can use its massive asset reserves to defend the yen. The Japanese Ministry of Finance also announced that it is working with the US side to push the dollar-yen exchange rate down. The authorities have made it clear that they will change the global monetary landscape, so we must take it seriously.
Three Options to Strengthen the Yen
Options 1 and 2 are simply not feasible because the parties involved cannot bear the political and economic consequences of deviating from the policies established since the 2010s.
Option 1: BOJ Rate Hikes
Currency trading is often based on interest rate differentials, and the dollar's yield is 2.75% higher than the yen. Borrowing yen, converting to dollars, and buying US Treasuries yields a positive carry. Therefore, according to no-arbitrage, the dollar-yen exchange rate must rise (i.e., yen depreciates against dollar) to offset this rate differential. To make the yen appreciate against the dollar, the most direct way is for the BOJ to raise rates to align with other central banks that have hiked rates post-COVID.
To understand the BOJ's dilemma in raising rates, one must remember that due to the Yield Curve Control (YCC) policy implemented over the past decade or more, which limits the yield on 10-year JGBs by printing money to buy bonds, the BOJ has become the largest holder of these "junk" JGBs.
Once interest rates rise, bond prices fall; the lower bond prices go, the larger the BOJ's unrealized losses. Unlike ordinary investors, the BOJ, which can print unlimited yen, can absorb unlimited yen losses. However, once the BOJ's massive money printing leads to a global loss of confidence in the yen, and thus no longer accepts yen for settlement of oil, food, medicine, etc., the situation becomes critical.
Although it has not reached that point yet, the BOJ must face this potential catastrophic prospect. It is precisely because of the fear of seeing losses on its balance sheet that the BOJ hesitates, only daring to make small rate hikes, while watching the market sell off long-term JGBs. As a result, the yen remains weak, and inflation from imported energy severely impacts Japanese society.
Politicians do not want the BOJ to raise rates because they must issue JGBs to cover fiscal deficits. If yields rise, debt service costs increase, which would weaken their ability to "buy off" the general public with various government subsidies (usually consumption tax rebates).
If the BOJ rapidly hikes rates, causing the yen to appreciate and thereby increasing dollar-yen volatility, all investors using yen financing to buy global stocks or bonds would be forced to unwind.
Remember July 2024? At that time, the yen exchange rate rose from 160 to 140 within a few trading days. I wrote two articles analyzing this in depth, but in short, the new BOJ Governor Kazuo Ueda unexpectedly announced a rate hike and promised further hikes in the future. The market panicked, and speculators who were short yen and long other financial assets rushed to unwind. At the time, there were rumors that several hedge fund PMs were forced to leave, just like Kenny G ended AI stock god Leopold.
At that time, the yen hit 140, and the Nasdaq 100 and Nikkei both fell more than 10%. The BOJ panicked and announced on August 12 that it would consider "market conditions" when assessing future rate hikes, which effectively meant future hikes were shelved. Upon the news, the yen weakened, stocks bottomed out and rebounded, resuming their upward trend.
Compared to other central banks, the BOJ has moved too fast in its rate normalization process, so it cannot withstand the intense market pressure that would result.
Option 2: "Japan Inc." Sells Overseas Assets to Repatriate Yen
I define "Japan Inc." as the corporate and public sectors that hold financial assets.
Albert J. Alletzhauser, in his book "The House of Nomura: The Inside Story of the Legendary Japanese Financial Dynasty," tells an interesting anecdote: 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 company, Nomura was not obligated to follow this directive, but Japan is a society that values conformity and collective action, so Nomura eventually complied.
In many cases, the ultimate goal of corporations is not shareholder returns, but achieving full employment and maintaining "national honor" (whatever that means). If the government advises private companies and individuals to sell overseas assets (mainly US stocks and Treasuries), sell dollars for yen, and repatriate funds, "Japan Inc." will comply.
The most telling indicator of "Japan capital repatriation" is the movement of Japan's largest pension fund, the Government Pension Investment Fund (GPIF). GPIF is managed by a bureaucratic committee whose members are appointed by various government ministries.
In 2014, to align with the massive money printing under "Abenomics," the then Prime Minister, after years of effort, replaced the head of GPIF, prompting it to vote to increase the allocation of overseas stocks and bonds in its portfolio. This was crucial because GPIF manages a portfolio of $1 trillion to $2 trillion. In October 2014, when their investment strategy changed, it set off an unstoppable wave: they began selling yen for dollars and buying US stocks and bonds.
This move created a structural yen seller, which reassured speculators that they could use cheap yen to finance various financial assets without worrying about the yen appreciating when rolling over or repaying loans.
I mention GPIF because the head of the Japanese Ministry of Finance, Mr. Katayama, recently stated that in his view, it is time to adjust GPIF's investment strategy to favor domestic securities over foreign securities. However, the bureaucrats inside GPIF are not buying it and have publicly stated that they will continue to prioritize the best interests of beneficiaries. Clearly, given that they are proponents of "Abenomics," they will never support shifting investment focus to Japanese domestic securities.
Just as Abe took control through personnel changes between 2012 and 2014, Prime Minister Takaichi must do the same. For us investors, the signal is clear: GPIF's investment strategy will eventually change, forcing it to sell hundreds of billions of dollars worth of foreign securities, and the capital repatriation will push the yen higher.
This process, though it will take several years to complete, is enough to make Bessent anxious, because it means that "Japan Inc.", one of the largest holders of U.S. securities, will shift from a buyer's stance to a seller's stance. This will destroy the stock and Treasury bond markets that "His Majesty America" relies on to sustain its profligate empire. However, precisely because "His Majesty America" provides a security guarantee for Japan's national security, "Japan Inc." actually cannot sell its U.S. assets either.
What I have said above is not new information. Everyone believes that the yen exchange rate is at a low level, and both the U.S. and Japan hope that the dollar will appreciate against the yen. But if the dollar-yen exchange rate falls from 160 to 90 (the fair value based on purchasing power parity), neither side can bear the losses that would result.
And the moment Trump's close friend, "weasel" Warsh (who indeed looks like a weasel and is equally cunning and treacherous in his actions), takes office as the chairman of the Federal Reserve, the third option has been approved for implementation.
The 2026 "Treasury-Fed Agreement" remains solid and effective; in addition to directly funding the short-term Treasury bonds issued by Bessent through reverse repurchase tools and policy rates below nominal growth, Warsh also has the authority to implement "Plan Three", thereby adjusting the dollar-yen exchange rate to the level needed to rebalance the global economic system once and for all.
Plan Three: Lending to the United States
Bessent made it very clear that the Japanese Ministry of Finance and Japanese companies should not raise the funds needed to boost the yen by selling U.S. securities, but should use the FIMA mechanism to pledge their Treasury bonds to the Federal Reserve 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 "boxes and arrows" diagram illustrates exactly this process. Let's go through the process again:
- The Japanese Ministry of Finance purchases Treasury bonds and obtains dollar loans from the Fed's FIMA mechanism;
- The Japanese Ministry of Finance sells dollars and buys yen in the global foreign exchange market;
- The Japanese 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 repurchase balances;
- The dollar-yen exchange rate falls, meaning the yen appreciates;
- Japanese bond yields decline due to yen purchases of Japanese bonds;
- Japanese stocks rise due to yen purchases of stocks.
Who is the "fall guy"?
1. U.S. taxpayers: Japan owes U.S. taxpayers a debt that, for political reasons, will never be repaid. Because this is purely money printing, it will trigger inflation in financial assets and physical goods. The U.S. cannot use its forward operating bases in the Asia-Pacific region to counter China and Russia in order to demand repayment of this loan.
2. Anyone shorting the yen: once the trend becomes clear, they must immediately cover their positions. This is not a big problem, because the volatility of the dollar-yen exchange rate will decline, allowing the yen carry trade to unwind in an orderly manner over several years.
Why has Plan Three not been implemented yet?
The current situation is that the FIMA mechanism has a $60 billion cap on outstanding loans to each counterparty. In the most recent operation to manipulate the dollar-yen exchange rate, the U.S. Treasury and the Japanese Ministry of Finance deployed more than $100 billion, yet only pushed the yen up by 5%, and this appreciation effect lasted only a few trading days. To utilize the FIMA mechanism, this cap must be completely removed, and the scope of eligible counterparties must be expanded to include major 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 committee include Warsh (FOMC Chair), Williams (FOMC Vice Chair and President of the New York Fed), and Jefferson (Vice Chair of the Board of Governors). The committee meets as needed, without publishing minutes or voting records; the public only learns of its decisions.
So, will this committee listen to Bessent? The answer is absolutely yes.
Trump and Warsh communicate frequently, and given that Bessent has clearly articulated how to reshape the global economic balance by adjusting the dollar-yen exchange rate, Trump obviously fully supports this. Therefore, Trump and Bessent will convey instructions to Warsh. Warsh has already proven himself to be a slippery and blustering "paper tiger". Under the management of the New York Fed led by Williams, the Fed's balance sheet continues to expand through the RMP.
Warsh once claimed that he would listen to the market in formulating policy, and the market clearly demanded a rate hike, as the two-year Treasury yield was more than 0.5% above the effective federal funds rate, but Warsh refused to raise rates at the July meeting. Instead of immediately implementing thorough and drastic reforms to the Fed's operations, Warsh established five special task forces to study how and why the Fed should change. I'm afraid that before these task forces make any recommendations, "Godot" will have already appeared (Odaily note: the allusion comes from "Waiting for Godot"; Arthur Hayes is satirizing the efficiency of the five task forces——).
Thus, Warsh has proven in a short time that he is just another partisan politician who obeys orders and does only what his boss asks. This is like his predecessor, the obsequious and spineless "softie" Powell, and even earlier, the "garden gnome grandma" Yellen (who, after being promoted to Treasury Secretary, did turn into a "bad girl").
Spread between two-year Treasury yield and effective federal funds rate
I don't know when Warsh will convene the subcommittee to announce adjustments to the FIMA mechanism, allowing unlimited money printing to manipulate the dollar-yen exchange rate lower, but I am sure it will happen. In fact, I am betting on it, and I am continuously increasing my exposure to assets that reflect the impact of another large-scale expansion of the Fed's balance sheet. These assets include Bitcoin, physical gold, and gold mining stocks.
Implementation of Plan Three Will Push Bitcoin Prices Higher
As long as the Fed prints more money, the price of Bitcoin will rise. So, is this FIMA trick enough to be a huge "pump", injecting trillions of dollars into it, thereby pushing up the prices of assets we hold?
Currently, we only focus on Treasury holdings, because Treasuries are the only assets eligible as FIMA collateral. This may change in the future, but let's first focus on the assets currently allowed by this tool. The two entities with the largest holdings of Treasuries are the Japanese government and GPIF. The Japanese government holds $1.143 trillion in U.S. Treasuries, and GPIF holds $230 billion, totaling $1.373 trillion.
This is a considerable amount. To put this in perspective, we can refer to the COVID-19 pandemic period, when the Fed printed about $4 trillion, as seen in the expansion of its balance sheet from 2020 to the end of 2021.
There is a very obvious correlation between the growth of the Fed's balance sheet (white curve) and the surge in Bitcoin prices (gold curve). In a previous article, I speculated that construction in the AI sector is entering a phase of capital waste. This assertion is crucial because the Trump administration wants this liquidity to be used to drive U.S. domestic AI capital expenditure, rather than to push up cryptocurrency prices.
But I believe that providing credit at this time to AI companies that cannot achieve positive capital returns (whether it be hyperscale cloud providers that invest heavily but cannot truly profit, or U.S. AI labs that cannot achieve profitability at "China market token prices") is essentially wasteful; and the rise in Bitcoin prices precisely reflects this non-productive use of capital.
The recent sharp rebound in gold prices from cyclical lows sends us a signal: the market would rather channel the coming flood of fiat dollars into monetary financial assets than give money to Altman's "money-burning machine" OpenAI or Musk's ethereal space data centers.
Altcoin party is coming, bullish on ENA 5x return
I know you all want to know what we are specifically doing at Maelstrom, but to build investment conviction, you must first understand the macro backdrop.
As I said before, when Bessent speaks, I listen. If there is one thing he is good at, it is currency manipulation. Just Google his illustrious career working with Soros and you will understand. Implementing such currency "tricks" requires neither the approval of elected politicians nor the nod of those whose terms are ending and face public Senate confirmation hearings. Just convene that usually sleepy "FX subcommittee" to change the rules of the game, and it can trigger a deluge of dollar printing.
When I saw the news about Bessent calling for reform of the FIMA mechanism, I immediately had a bullish instinct. Every macro analyst I follow believes this signals a major turning point in the USD/JPY trend. You must position ahead of time because they are serious this time.
Printing money is a political decision made to address unsustainable economic realities. Politics is always complicated, but in the current situation, the Trump administration's intention is clear: they want you to log into your brokerage account and buy financial assets. That is why Bessent is sending a clear signal to all who will listen, indicating where the printed money will start to spread. I am listening, and I will do my "duty" - Buy in.
We already hold a lot of Bitcoin, so the next question is who else will perform better?
This is not an AI stock recommendation article, but if you are interested in that, you can also bottom-fish to your heart's content. The "Leopold low" has already provided you with an excellent entry point for AI-related assets. Speaking of cryptocurrencies, the large-cap potential stock that has not yet exploded is ETH, the only major coin that failed to break its all-time high in the 2025 rally; moreover, Ethereum will become the security layer for RWA assets.
Next up is an altcoin that is at a low point but has the potential to easily achieve a 5 to 10x increase: Ethena (ENA).
One issue with Ethena is the lack of a buyback mechanism, but given that it is still the sixth-largest dollar stablecoin by circulating supply, this can be overlooked. The problem with ENA is that due to the decline in coin price, the Bitcoin basis yield has disappeared, making the yield on holding USDe only slightly higher than U.S. Treasuries. It is not worth taking on the counterparty risk of centralized exchanges and smart contract risk to hold staked USDe.
That is why its circulating supply has fallen 75% from its peak, and the ENA token price has dropped over 90%. But even a small increase in future dollar liquidity can push Bitcoin prices up, thereby raising basis yields and causing significant inflows into USDe. ENA does not need much to escape its doldrums, so in the coming months, it might be a "speculative" option worth considering for a quick 5x.
I have not yet fired all my bullets; we must wait for Waller to convene the subcommittee and modify the FIMA rules. Keep a close watch, as this could happen suddenly when no one is paying attention. However, gold and USD/JPY should start moving before the policy announcement, after all, those close to the Trump administration are likely to position ahead of the news. This is common in other asset classes, and gold and forex markets are no exception.
In short, the days of "cheap" yen are coming to an end.
