Bitcoin Bulls Lose Momentum as Aussie-Yen Weakens, Signaling Risk Aversion Ahead.

As expectations grow for a potential rate hike by the Bank of Japan (BOJ) in December, the Japanese yen is positioning itself to strengthen, signaling a possible shift toward risk aversion across global markets.

Bitcoin (BTC) has encountered a speed bump in its bullish trajectory this week, as a slowdown in demand from U.S. investors has dampened its upward momentum. Meanwhile, the AUD/JPY currency pair, long seen as a key indicator of global risk sentiment, has once again started to decline, hinting at a broader risk-off sentiment.

The Australian dollar (AUD), a commodity-linked currency, is often used as a barometer for the health of global markets, especially in relation to emerging economies and China. On the flip side, the Japanese yen (JPY) is considered a safe-haven asset that investors flock to in times of market stress. A fall in the AUD/JPY pair typically signals increased caution among investors.

City Index analyst Matt Simpson pointed out, “AUD/JPY is a key risk indicator, and the current decline suggests that we may be entering a period of risk aversion. A significant drop in this pair is likely to coincide with broader market weakness.”

Though some Bitcoin enthusiasts may see this foreign exchange movement as inconsequential given Bitcoin’s recent rise, the historical pattern suggests otherwise. Recall the sharp rise in the yen in late July and August, which was spurred by rumors that the BOJ was preparing to tighten its monetary policy. At that time, the AUD/JPY pair fell sharply, losing over 8% and signaling the beginning of a broader risk-off sentiment that dragged Bitcoin down from nearly $70,000 to below $50,000. This decline was driven by the unwinding of risk-on trades that had been funded by cheap loans denominated in JPY.

Currently, the AUD/JPY has breached its previous upward trend, signaling renewed yen strength. This shift in market dynamics is exacerbated by growing speculation that the BOJ will raise rates in December.

In addition, the market is also reconsidering the Federal Reserve’s stance on rate cuts, with some now questioning whether the Fed will continue its rate-cutting path next month. Meanwhile, trade war tensions, particularly related to President-elect Donald Trump’s proposed tariffs on China, Mexico, and Canada, are re-emerging, adding further risk to the market.

As ING noted, expectations of a BOJ rate hike are rising, particularly after Governor Ueda’s comments on November 21, which left the possibility open for tighter policy in December. “Ueda’s statement that the BOJ would ‘decide at each meeting’ has intensified speculation that a rate hike could be on the horizon,” ING explained.

Bitcoin investors should pay close attention to the potential for a yen-driven risk-off scenario, which could result in another price pullback for BTC, possibly pushing it below $90,000 if market sentiment turns more cautious.