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 dollar, with the most likely path being the Japanese government using the FIMA mechanism to pledge its held government bonds to 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 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 he has not yet used all his "bullets," and what must now be awaited is Walsh 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 continuously weakened to the point of extreme softness, 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 the focal point of debate between the two major powers, the U.S. and China, as well as among ordinary Japanese voters. To unravel the yen puzzle, there are three approaches, but the U.S. Treasury and Japanese politicians only favor one.

I will explain how each method to promote 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 Bitcoin and cryptocurrencies will experience a surge as dollar liquidity skyrockets (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) pledges its held U.S. Treasury bonds to the Federal Reserve through repurchase (repo) to obtain dollars, then sells dollars in the foreign exchange market to buy yen.

Before delving into the details, all "crypto friends" (degens) should ask themselves: Why discuss yen appreciation at this time? Over the past few decades, countless people have asserted that the yen is about to appreciate and end global carry trades. Two weeks ago, senior officials from the monetary policies of both the U.S. and Japan conducted a joint currency manipulation, which, of course, the officials euphemistically referred to as "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.

U.S. Treasury Secretary Besant declared that he hopes the Federal Reserve will raise 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 U.S. side to lower the dollar-yen exchange rate. 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 one and two are fundamentally unworkable 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 U.S. Treasury bonds can yield positive interest differential returns. Therefore, according to the no-arbitrage principle, the dollar-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 those of 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 involves printing money to buy bonds to limit the yield on 10-year Japanese government 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 endure unlimited yen losses due to its ability to print money indefinitely. However, if large-scale money printing by the Bank of Japan leads to a loss of global confidence in the yen, resulting in a refusal to accept yen for transactions involving oil, food, pharmaceuticals, etc., the situation could become critical.

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 has hesitated, only daring 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, while inflation driven 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 citizens through various government subsidies (usually consumption tax reductions).

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

Do you remember July 2024? At that time, the yen's exchange rate rose from 160 to 140 in just a few trading days. I wrote two in-depth articles on this, but in short, the newly appointed Governor of the Bank of Japan, Kazuo Ueda, unexpectedly announced an interest rate hike and promised further hikes in the future. The market panicked, and those who were shorting the yen and going 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 the AI stock god Leopold.

At that time, when the yen exchange rate hit 140, both the Nasdaq 100 index and the Nikkei index fell by over 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 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 the enterprises and public sectors holding 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 U.S. stocks to support the market. As a private enterprise, Nomura was under no obligation to follow this directive, but Japan is a society that values conformity and collective action, so Nomura ultimately complied.

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

The most significant indicator signaling "Japanese capital 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 investment portfolio. This was crucial because the GPIF manages a portfolio size of $1 trillion to $2 trillion. In October 2014, when their investment strategy changed, it initiated an unstoppable wave, as they began selling yen for dollars and buying U.S. stocks and bonds.

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

I mention the GPIF because Mr. Katayama, the 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 do not buy this and publicly state that they will prioritize the best interests of the policyholders. Clearly, given that they are supporters of "Abenomics," they will never support shifting investment focus to domestic securities.

Just as Abe controlled the situation through personnel arrangements between 2012 and 2014, Prime Minister Kishida must 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 capital repatriation will push up the yen exchange rate.

This process may take years to complete, but it is enough to make Besant anxious, as it means that "Japan Inc.," one of the largest holders of U.S. 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, precisely because "Uncle Sam" guarantees Japan's national security, "Japan Inc." cannot actually sell its U.S. assets.

What has been said above is not new information. Everyone believes that the yen exchange rate is at a low point, and both the U.S. and Japan hope for the appreciation of the dollar against the yen. But if the dollar-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" Walsh (who indeed looks like a weasel and acts just as cunning), took office as the Federal Reserve Chairman, the third option has been approved for launch.

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, Walsh also has the authority to implement "Option Three," thereby adjusting the dollar-yen exchange rate to the level needed to rebalance the global economic system once and for all.

Option Three: Borrowing from the U.S.

Besant made it 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 utilize the FIMA mechanism to pledge their held government 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 "box and arrow" diagram above illustrates this process. Let's go through this process again:

1. The Japanese Ministry of Finance purchases government bonds and obtains dollar loans from the Federal Reserve'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, purchasing Japanese government bonds and stocks.

The main impacts of this policy include:

• The Federal Reserve provides dollar funds through money printing, and its balance sheet will expand in tandem with the increase in the outstanding balance of FIMA repos;
• The dollar-yen exchange rate falls, indicating yen appreciation;
• 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. U.S. taxpayers: Japan owes U.S. taxpayers money that will never be repaid for political reasons. This is purely a money-printing act that will trigger inflation at the level of financial assets and physical goods. The U.S. cannot use its front-line combat bases in the Asia-Pacific 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-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-yen exchange rate, the U.S. Treasury and the Japanese Ministry of Finance invested over $100 billion but 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 range of eligible counterparties must be expanded to include large 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 Walsh (FOMC Chairman), Williams (FOMC Vice Chairman and New York Fed President), and Jefferson (Vice Chairman 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 learn the results of their decisions.

So, will this committee heed Besant's instructions? The answer is absolutely yes.

Trump and Walsh communicate frequently, and given that Besant has clearly articulated how to reshape global economic balance by adjusting the dollar-yen exchange rate, Trump is evidently fully supportive of this. Therefore, Trump and Besant will convey instructions to Walsh. Walsh 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.

Walsh 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 Walsh refused to raise rates at the July meeting. Walsh did not immediately implement thorough and drastic reforms to 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 recommendations, "Godot" will have already shown up* (Odaily Note: The reference comes from "Waiting for Godot," Arthur Hayes is mocking the efficiency of the five working groups------).*

Thus, Walsh has quickly proven that he is just another obedient partisan politician who will only act according to his boss's wishes. This is akin to his predecessor, the spineless and cowardly "soft egg" Powell, and even earlier, the "garden gnome grandma" Yellen (who became 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 Walsh will convene the subcommittee to announce adjustments to the FIMA mechanism, allowing for unrestricted money printing to manipulate the dollar-yen exchange rate downwards, but I am sure it will happen. In fact, I bet it will happen and 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 price of Bitcoin will be. So, will this FIMA trick be enough to become a massive "pump," injecting trillions of dollars into it, thereby driving up the prices of the assets we hold?

Currently, we are only focusing on the amount of government bonds held, as government 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 holding the largest amount of government bonds are the Japanese government and GPIF. The Japanese government holds $1.143 trillion in U.S. Treasury bonds, and GPIF holds $230 billion, totaling $1.373 trillion.

This is a considerable amount. To help understand this scale, we can refer to the situation during the COVID-19 pandemic when the Federal Reserve printed about $4 trillion, which can be 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 that this liquidity can be used to drive domestic AI capital expenditure in the U.S., rather than inflating cryptocurrency prices.

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

Recently, gold prices have rebounded significantly from their 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, Expecting 5x 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 any expertise, it is in manipulating currency. Just Google his illustrious resume working with Soros, and you'll understand. Implementing this monetary "trick" does not require the approval of elected politicians or the nod of those whose terms are expiring and facing Senate confirmation hearings. All it takes is to convene that usually sleepy "Foreign Currency Subcommittee" to modify the rules of the game, triggering a surge in dollar printing.

When I saw news about Besant calling for reforms to the FIMA mechanism, I immediately had a bullish intuition. Every macro analyst I follow believes this signals a significant turning point in the dollar-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 clear: they want you to log into your brokerage account and buy financial assets. That is why Besant has clearly released signals to anyone willing to listen, indicating where the printed money will begin to spread. I am listening and will fulfill my "duty"—Buy in.

We have already accumulated 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 want to introduce an altcoin that is at a low point but is expected to easily achieve a 5 to 10 times increase, Ethena (ENA).

One issue with Ethena is the lack of a buyback mechanism, but considering it is currently the sixth-ranked dollar stablecoin by circulation, 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 only slightly higher than that of U.S. 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, thereby 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 in the coming months, it may be a speculative choice worth considering for a quick 5x return.

I have not yet used all my bullets; we must wait for Walsh to convene the subcommittee and amend the FIMA rules. Keep a close eye on this, as it may happen suddenly when no one is paying attention. However, gold and the dollar-yen exchange rate should start to fluctuate before the policy announcement, as those large players closely connected to the Trump administration are likely to position themselves ahead of the news release. This situation is not uncommon 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.