Arthur Hayes' new article: Betting on the appreciation of the yen, ENA may rise 5 to 10 times in the coming months

Original Title: Yen-quake

Original Author: Arthur Hayes

Original Compilation: Golem, Odaily Planet Daily

Editor's Note: In his latest article "Yen-quake," Arthur Hayes believes that the yen will soon appreciate against the US dollar, with the most likely path being the Japanese government using the FIMA mechanism to collateralize its holdings of government bonds with the Federal Reserve for repurchase financing, borrowing dollars, and then using those dollars to buy yen. Arthur Hayes also states that this will lead to a surge in dollar liquidity, subsequently driving up the prices of assets such as Bitcoin and physical gold. He believes that besides Bitcoin and Ethereum being undervalued at this stage, ENA is also expected to rise 5-10 times in the coming months.

Arthur Hayes reveals that he has not yet used all his "bullets," and what must now be awaited is Wash convening the subcommittee and amending the FIMA rules to pave the way for Japan to utilize the FIMA mechanism to promote the appreciation of the yen. Odaily Planet Daily compiles the core content of the full text as follows, enjoy~

Over the past decade, the yen has weakened significantly, becoming extremely soft, driving global asset markets higher. But like all good things that favor wealthy financial asset holders, this situation will eventually come to an end. The yen is the most severely undervalued currency globally and is a focal point of debate between the two major powers, the US and China, as well as among ordinary Japanese voters. To unravel the yen puzzle, there are three approaches, but the US Treasury and Japanese politicians only favor one.

I will explain how each method that promotes the appreciation of the yen works and summarize why the last one is the preferred option. Then, I will explore how to politically implement this third option. Finally, I will elaborate on why, with the surge in dollar liquidity, Bitcoin and cryptocurrencies will experience a skyrocketing rise (I know this is also the reason you read my "human nonsense").

The three options are as follows:

1. The Bank of Japan (BOJ) significantly raises interest rates to eliminate the interest rate differential between the dollar and the yen (at least in terms of short-term rates);
2. The government lobbies domestic institutions and public entities (such as the Government Pension Investment Fund, GPIF) to change investment strategies, selling overseas assets and buying domestic assets;
3. 【Preferred Option】The Ministry of Finance (MOF) of Japan collateralizes its holdings of US Treasury bonds through repurchase (repo) to the Federal Reserve in exchange for dollars, then sells dollars in the foreign exchange market and buys yen.

Before diving into the details, all "crypto friends" (degens) should ask themselves: why discuss the appreciation of the yen at this time? For decades, countless people have asserted that the yen is about to appreciate and end the global carry trade. Two weeks ago, senior officials from the monetary policies of both Japan and the US implemented a joint currency manipulation, which, of course, the officials euphemistically called "intervention." The same behavior, if done by ordinary people, would be called "collusion" and "conspiracy"; but when the operators become nations, the terminology changes completely.

US Treasury Secretary Besant declared that he hopes the Federal Reserve will increase the counterparty limit for the FIMA repo tool so that the Japanese Ministry of Finance can use its vast asset reserves to defend the yen's exchange rate. The Japanese Ministry of Finance also announced that it is working with the US side to lower the dollar to yen exchange rate. The authorities have clearly stated that they will change the global monetary landscape, so we must take it seriously.

Three Options to Strengthen the Yen

Options one and two are fundamentally unfeasible because the parties involved cannot bear the political and economic consequences of deviating from the established policies since the 2010s.

Option One: The Bank of Japan Raises Interest Rates

Currency trading often relies on interest rate differentials, and the yield on the dollar is 2.75% higher than that of the yen. Borrowing yen, converting it to dollars, and purchasing US Treasury bonds can yield positive interest differential returns. Therefore, according to the no-arbitrage principle, the dollar to yen exchange rate must rise (i.e., the yen depreciates against the dollar) to offset this interest rate differential. The most direct way to appreciate the yen against the dollar is for the Bank of Japan to raise interest rates to align its rate level with other central banks that have raised rates post-COVID.

To understand the challenges faced by the Bank of Japan in raising interest rates, it is essential to remember that due to the implementation of yield curve control (YCC) policy over the past decade, which limits the yield on 10-year Japanese government bonds by printing money to buy bonds, the Bank of Japan has become the largest holder of these "junk" Japanese government bonds.

Once interest rates rise, bond prices will fall; the lower the bond prices drop, the larger the unrealized losses for the Bank of Japan. Unlike ordinary investors, the Bank of Japan can bear unlimited yen losses because it can print money indefinitely; however, if massive money printing by the Bank of Japan leads to a loss of global confidence in the yen, and it is no longer accepted for settling transactions in oil, food, medicine, etc., the situation could become dire.

Although we have not yet reached this point, the Bank of Japan must confront this potential catastrophic scenario. It is precisely because of the fear of seeing losses on its balance sheet that the Bank of Japan hesitates and dares only to make slight interest rate increases while watching the market sell off long-term Japanese government bonds. The result is that the yen continues to depreciate, and inflation caused by imported energy severely impacts the foundation of Japanese society.

Politicians do not want the Bank of Japan to raise interest rates because they must issue Japanese government bonds to cover fiscal deficits. If yields rise, the cost of debt repayment will also increase, which will weaken their ability to "buy off" ordinary people through various government subsidies (usually consumption tax reductions).

If the Bank of Japan's rapid interest rate hikes lead to yen appreciation, thus increasing the volatility of the dollar to yen exchange rate, all investors who financed global stocks or bonds using yen will be forced to close their positions.

Do you remember July 2024? At that time, the yen exchange rate rose from 160 to 140 in just a few trading days. I wrote two articles analyzing this in depth, but in short, the newly appointed governor of the Bank of Japan, Ueda Kazuo, unexpectedly announced an interest rate hike and promised further increases in the future. The market panicked, and those who shorted the yen and went long on other financial assets rushed to close their positions. There were rumors that several hedge fund PMs were forced to leave as a result, just like Kenny G ended AI stock god Leopold.

When the yen exchange rate hit 140, both the Nasdaq 100 index and the Nikkei index fell by more than 10%. The Bank of Japan panicked and announced on August 12 that it would consider "market conditions" when assessing future interest rate paths, which effectively meant that future interest rate hikes had been shelved. As soon as the news broke, the yen weakened, and the stock market rebounded, regaining its upward momentum.

Compared to other central banks, the Bank of Japan has moved too quickly in the normalization process of interest rates, thus unable to withstand the severe market pressures that arise.

Option Two: "Japan Inc." Sells Overseas Assets to Repatriate Yen

I define "Japan Inc." as enterprises and public sectors that hold financial assets.

Albert J. Alletzhauser recounts an interesting anecdote in his book "Nomura Empire: Inside Japan's Legendary Financial Dynasty": After the stock market crash in 1987, 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 follow this directive, but Japan is a society that values conformity and collective action, and Nomura ultimately complied.

Often, the highest goal of enterprises is not shareholder returns but achieving full employment and maintaining "national honor" (regardless of its definition). If the government suggests that private enterprises and individuals sell overseas assets (mainly US stocks and bonds), sell dollars to buy yen, and repatriate funds, "Japan Inc." must comply.

The best indicator to signal "Japanese funds repatriation" is the movement of 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 massive money printing policy under "Abenomics," the then Prime Minister spent years replacing the head of the GPIF, prompting it to vote to increase the allocation of overseas stocks and bonds in its portfolio. This was crucial because the GPIF manages a portfolio worth between $1 trillion and $2 trillion. In October 2014, when their investment strategy changed, it triggered an unstoppable wave, as they began selling yen for dollars and buying US stocks and bonds.

This move created a structural seller of yen, reassuring speculators that they could finance various financial assets with cheap yen without worrying about the yen appreciating when extending loans or repaying them.

I mention the GPIF because Mr. Katayama, head of the Japanese Ministry of Finance, recently stated that he believes it is time to adjust the GPIF's investment strategy to favor domestic securities over foreign securities. However, the bureaucrats within the GPIF are not buying this and have publicly stated that they will adhere to the best interests of the policyholders. Clearly, given that they are supporters of "Abenomics," they would never support shifting the investment focus to domestic securities.

Just as Abe controlled the situation through personnel arrangements between 2012 and 2014, Prime Minister Kishida must also take similar measures. For us investors, the signal is very clear: the GPIF's investment strategy will eventually change, forcing it to sell foreign securities worth hundreds of billions of dollars, and the repatriation of funds will push up the yen exchange rate.

This process may take years to complete, but it is enough to make Besant anxious because it means that "Japan Inc.," as one of the largest holders of US securities, will shift from a buyer to a seller. This will destroy the stock and bond markets that "Uncle Sam" relies on to support its extravagant empire. However, because "Uncle Sam" provides security guarantees for Japan, "Japan Inc." cannot actually sell its US assets.

What has been said above is not new information. Everyone believes that the yen exchange rate is at a low point, and both Japan and the US hope for the appreciation of the dollar against the yen. But if the dollar to yen exchange rate falls from 160 to 90 (the fair value calculated by purchasing power parity), neither side can bear the resulting losses.

And from the moment Trump's friend, "Weasel" Wash (who indeed looks like a weasel and acts just as cunning and insidious), took office as the Federal Reserve Chair, the third option has been authorized to start.

The "Treasury-Fed Agreement" of 2026 remains solid and effective; besides using reverse repo tools and policy rates below the nominal growth rate to directly fund short-term Treasury bonds issued by Besant, Wash also has the authority to implement "Option Three," thus adjusting the dollar to yen exchange rate to the level needed to rebalance the global economic system once and for all.

Option Three: Borrowing from the US

Besant made it very clear that the Japanese Ministry of Finance and Japanese companies should not raise funds needed to boost the yen by selling US securities, but should use the FIMA mechanism to collateralize their holdings of Treasury bonds with the Federal Reserve for repurchase financing, borrowing dollars, and then using those dollars to buy yen. There is a small flaw in his plan, which I will discuss later, but the "box and arrow" diagram above illustrates this process. Let's go through this process again:

1. The Japanese Ministry of Finance purchases Treasury bonds and obtains dollar loans from the Fed's FIMA mechanism;
2. The Japanese Ministry of Finance sells dollars in the global foreign exchange market and buys yen;
3. The Japanese Ministry of Finance reinvests these yen funds domestically, buying Japanese government bonds and stocks.

The main impacts of this policy include:

• The Federal Reserve provides dollar funding through money printing, and its balance sheet will expand in tandem with the increase in the outstanding balance of FIMA repos;
• The dollar to yen exchange rate falls, meaning the yen appreciates;
• Japanese bond yields decline due to yen purchases of Japanese bonds;
• The Japanese stock market rises due to yen purchases of stocks.

Who is the "sucker"?

1. American taxpayers: Japan owes American taxpayers a sum of money that will never be repaid for political reasons. Because this is purely a money printing act, it will trigger inflation at the level of financial assets and physical goods. The US cannot use its front-line combat bases in the Asia-Pacific region to confront China and Russia to demand repayment of this loan.

2. Anyone shorting the yen: Once the trend becomes clear, they must close their positions immediately. This is not a big problem because the volatility of the dollar to yen exchange rate will decrease, allowing yen carry trades to close in an orderly manner over the years.

Why has Option Three not yet been implemented?

The current situation is that the FIMA mechanism has a cap of $60 billion on outstanding loans for each counterparty. In the recent action to manipulate the dollar to yen exchange rate, the US Treasury and the Japanese Ministry of Finance invested over $100 billion but only pushed the yen to appreciate 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 range of eligible counterparties must be expanded to include large Japanese corporations and quasi-public investment institutions (like GPIF).

Who manages the FIMA mechanism? During the COVID 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 Wash (FOMC Chair), Williams (FOMC Vice Chair and New York Fed President), and Jefferson (Vice Chair of the Federal Reserve Board). The committee can convene meetings as needed without releasing meeting minutes or disclosing voting records, and the outside world can only know the results of their decisions.

So, will this committee take orders from Besant? The answer is absolutely yes.

Trump and Wash communicate frequently, and given that Besant has clearly articulated how to reshape global economic balance by adjusting the dollar to yen exchange rate, Trump is clearly fully supportive of this. Therefore, Trump and Besant will convey instructions to Wash. Wash has previously proven himself to be a slippery and blustering "paper tiger." Under Williams' management at the New York Fed, the Federal Reserve's balance sheet continues to expand through RMP.

Wash has claimed that he listens to market opinions when formulating policies, and the market clearly demands interest rate hikes, as the two-year Treasury yield is more than 0.5% higher than the effective federal funds rate, but Wash refused to raise rates at the July meeting. Wash did not immediately carry out a thorough and drastic reform of the Federal Reserve's operations; instead, he established five special working groups to study how and why the Federal Reserve should undergo changes. It is likely that by the time these working groups propose any suggestions, "Godot" will have already appeared* (Odaily Note: The reference comes from "Waiting for Godot," Arthur Hayes is mocking the efficiency of the five working groups------).*

Thus, Wash has quickly proven that he is just another obedient party politician who will act according to his boss's demands. This is just like his predecessor, the spineless and cowardly "softie" Powell, and even earlier, the "garden gnome grandma" Yellen (who has become a "bad girl" after being promoted to Treasury Secretary).

The difference between the two-year Treasury yield and the effective federal funds rate

I do not know when Wash will convene the subcommittee to announce adjustments to the FIMA mechanism, allowing for unrestricted money printing to manipulate the dollar to yen exchange rate lower, but I am sure it will happen. In fact, I bet it will happen, and I am continuously increasing my investment exposure to assets that can reflect the impact of the Federal Reserve's balance sheet expanding massively again. These assets include Bitcoin, physical gold, and stocks of gold mining companies.

The Implementation of the Third Option Will Drive Up Bitcoin Prices

The more the Federal Reserve prints money, the higher the Bitcoin price will be. So, is this FIMA trick enough to become a massive "pump," injecting trillions of dollars into it, thus driving up the prices of the assets we hold?

Currently, we only focus on Treasury holdings because Treasury bonds are the only assets eligible for FIMA collateral. The situation may change in the future, but for now, let's focus on the assets currently allowed for use by this tool. The two entities with the largest holdings of Treasury bonds are the Japanese government and GPIF. The Japanese government holds $1.143 trillion in US Treasury bonds, and GPIF holds $230 billion, totaling $1.373 trillion.

This is quite a considerable amount. To understand the scale of this, we can refer to the situation during the COVID pandemic when the Federal Reserve printed about $4 trillion, as seen from the expansion of its balance sheet between the end of 2020 and 2021.

There is a very clear correlation between the growth of the Federal Reserve's balance sheet (white curve) and the surge in Bitcoin prices (gold curve). In previous articles, I speculated that the construction in the AI field is entering a phase of capital waste. This conclusion is crucial because the Trump administration hopes this liquidity can be used to drive domestic AI capital expenditures in the US rather than to inflate cryptocurrency prices.

However, I believe that providing credit to those AI companies that cannot achieve positive capital returns (whether those massive cloud service providers that invest heavily but cannot truly profit or those US AI labs that cannot profit at "Chinese market token prices") is essentially a waste; and the rise in Bitcoin prices reflects this non-productive use of capital.

Recently, gold prices have rebounded significantly from a phase low, signaling to us that the market prefers to direct the impending flood of fiat dollars into monetary financial assets rather than giving money to that "money-burning machine" OpenAI or Musk's elusive space data centers.

The Altcoin Frenzy is Coming, Expect 5 Times Returns from ENA

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

As I mentioned earlier, when Besant speaks, I listen attentively. If he has a particular skill, it is currency manipulation. Just Google his illustrious history of working with Soros, and you'll understand. Implementing these "tricks" in monetary means does not require the approval of elected politicians or the nod of those whose terms are about to expire and facing Senate confirmation hearings. All it takes is to convene that usually sleepy "foreign exchange subcommittee" to modify the rules of the game, triggering a surge in dollar printing.

When I saw the news about Besant calling for reforms to the FIMA mechanism, I immediately had a bullish intuition. Every macro analyst I follow believes this indicates a significant turning point in the dollar to yen exchange rate trend. You must position yourself in advance because this time they are serious.

Money printing is a political decision made to address unsustainable economic realities. Politics is always complex, but in the current situation, the intentions of the Trump administration are very clear: they want you to log into your brokerage account and buy financial assets. That is why Besant has clearly released signals to all willing to listen, indicating where the printed money will begin to spread. I am listening and will fulfill my "duty"------Buy in.

We already hold a significant amount of Bitcoin, so the next question is who else will perform better?

While this is not an AI stock recommendation article, if you are interested in that stuff, feel free to bottom fish. The "Leopold low" has already provided you with an excellent entry opportunity for AI-related assets. Speaking of cryptocurrencies, the yet-to-explode large-cap potential stock is ETH, which is the only mainstream coin that failed to break its historical high in the 2025 market; moreover, Ethereum will become the security layer for RWA assets.

Next, I will introduce a low-point altcoin, Ethena (ENA), which is expected to easily achieve a 5 to 10 times increase.

One issue with Ethena is the lack of a repurchase mechanism; however, considering it is currently the sixth largest circulating dollar stablecoin, this can be overlooked. The problem with ENA is that due to the drop in coin prices, the Bitcoin basis yield has disappeared, and the yield on holding USDe is almost just slightly higher than that of US Treasury bonds. It is simply not worth it to bear the counterparty risk of centralized exchanges and smart contract risks to hold staked USDe.

As a result, its circulating supply has decreased by 75% from its peak, and the price of ENA tokens has dropped by over 90%. However, even if dollar liquidity only sees a slight increase in the future, it can drive up Bitcoin prices, thus increasing basis yields and leading to a significant influx of funds into USDe. ENA does not require many conditions to shake off its slump, so it may be a speculative choice worth considering for a quick 5 times increase in the coming months.

I have not yet used all my bullets; we must wait for Wash to convene the subcommittee and amend the FIMA rules. Stay tuned, as this may happen suddenly when no one is paying attention. However, gold and the dollar to yen exchange rate should start to fluctuate before the policy announcement, as those closely related to the Trump administration are likely to position themselves ahead of the news release. This situation is common in other asset classes, and the gold and foreign exchange markets are no exception.

In summary, the days of the "cheap" yen are coming to an end.