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This past week saw the largest decline in the dollar in over seven months, as rumors of currency intervention and so-called “rate checks” rippled through FX markets.

Understanding what happened — and why — matters, especially for Bitcoin.

Here’s what you need to know ⬇️

How We Got Here: USD/JPY & The Yen Carry Trade

For years now, the Bank of Japan held interest rates below zero and engaged in Yield Curve Control (YCC) to artificially suppress Japanese Government Bonds (JGBs) to very low, or even negative rates.

Remember, the price of money is the interest rate - so, they made the Yen FREE.

In fact, with negative interest rates, they made it more than free. Instead of that free money making its way into the Japanese economy (as was intended), it sought yield elsewhere:

Firms/individuals would borrow at 0%, but they didn’t want to hold the Yen as the Bank of Japan was telling everyone it had no value, so they sold the Yen to buy the Dollar. Then, they would use those dollars to buy US Treasuries (amongst other yield-bearing instruments like MBS).

This further exacerbated the decline in their currency and made the Dollar appreciate significantly versus the Yen.

A Dramatic Reversal - The Dollar DUMPS

On Thursday, that trend abruptly reversed.

But why?

USD/JPY fell sharply after the Bank of Japan concluded its two-day meeting and opted to hold its overnight policy rate at 0.75% (in spite of the meltdown in their bond market mere days before and the continued weakness in their currency).

The currency markets saw this as a dovish signal- BoJ wasn’t being serious enough about tightening monetary policy, and therefore, the dollar strengthened vs. the Yen.

But that move didn’t last.

So Why Did the USD Crash?

The dollar strengthening vs. the Yen made perfect sense- BoJ was being too dovish. But why the dramatic reversal about an hour later?

Enter the “rate check”.

A rate check is when a large player, like a central bank, will call up banks/dealers and ask for a quote (in this case, USD/JPY), often a subtle threat of currency intervention- an effort to get market participants to do the work for you.

Imagine you are on the foreign exchange desk of a large bank and get the call from a central bank with $1.37 trillion of reserves. They’re asking you for a quote on USD/JPY and tell you they’d like to possibly put a $10 billion order at XYZ price.

A single order (from a player with historic amounts of capital) that would cause a 1% move [this is incredibly large in currency markets], within a matter of minutes.

Obviously, you’d immediately tell them to hold, then proceed to scream for everyone on the desk to immediately front-run the order. Then, the rumor would spread to your friends at other banks and funds, and you’d see a single verbal threat turn into a wildfire of momentum.

The Fed Conducts a Rate Check of Their Own?!

After the initial move lower, the USD/JPY appeared to stabilize. No official comment was made from the Bank of Japan.

However, at around 11am EST on Friday, we then saw ANOTHER dramatic move lower.

Market chatter began circulating that the New York Fed may have conducted its own rate check, potentially in coordination with Japanese authorities. While unconfirmed, participants viewed the possibility as highly dollar-negative and yen-positive.

Bank of Japan looking to sell USD/JPY in size… then the Fed?!

By the close, USD/JPY recorded its largest one-day decline since August 2025, and the third-largest drop over the past year.

So What’s Next, and What Does it Mean for Bitcoin?

Brent Donnelly of Spectra markets offers his thoughts on where this might all be heading:

Historically, a weaker dollar can be supportive for assets like gold and Bitcoin but we’ve seen a troubling reversal of these historic DXY correlations recently:

If the Fed had taken direction from the US Treasury Department (which is the party responsible for currency policy on the dollar) to help the Bank of Japan intervene to weaken the dollar, you’d expect this to be very bullish for BTC and Gold. In fact, the DXY saw the largest weekly decline in 10 months.

Ultimately, if we are indeed in the early innings of a sustained move lower in the dollar/appreciation of the Yen (prior interventions were ~$100 billion large), we could see significant volatility for risk assets, as the Yen Carry Trade Unwind 2.0 could appear.

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