A recap of Arthur Hayes's position-taking logic and reference guidance for current allocation.
Written by Arthur Hayes, former co-founder of BitMEX
Compiled by Saoirse, Foresight News
In early March 2011, my mind was still running wild: what costume should I wear for this year's seven-a-side rugby tournament? After attending several events back to back, could my body handle the Taiwan Spring Scream Music Festival?
My thoughts snapped back to reality. At the time, I was seated at my desk in the Hong Kong International Finance Centre building for Deutsche Bank, responsible for market making for multiple MSCI Japan ETFs listed on both the HKEX and the SGX. Suddenly, someone in the trading floor shouted that a massive earthquake had struck Japan. Every TV in the office immediately switched to a live broadcast from the Tokyo branch—buildings violently shaking on screen. Then we switched to the news channel and watched firsthand as the tsunami swept across Japan's northeastern coast. The scene was shocking. Worse still, the Fukushima nuclear power plant caught fire. Only afterward did we learn that radiation had at one point nearly forced the entire city of Tokyo to evacuate.
The Nikkei index promptly plunged, with the intraday drop nearing 20%. At the same time, the USD/JPY exchange rate slid in a straight line, approaching 70; the yen exchange rate fell into its strongest historical range since World War II. I absolutely can’t stand yen strength. The winter before, I went skiing in Niseko, and the exchange rate of USD/JPY around 80 made local consumption ridiculously expensive. At the time, my friend’s girlfriend was an heiress from a wealthy family. She booked all the city’s high-end restaurants. She had no concept of money—we went through tasting meals at every restaurant. After that, I never made that mistake again. This time in Hokkaido, I only stayed in hostels and ate cheap ramen like crazy. Back to the trading screen now.
I’m a market maker holding several MSCI Japan ETFs denominated in dollars. My positions naturally embed yen exposure. Yen volatility is both fast and brutal—I don’t even have time to hedge FX risk. So I lie low and hold a long USD/JPY position. Traders from all sides keep疯狂砸出 ETF sell orders; the more they pile on, the higher my long position grows. I remember a logic a veteran trader explained: Japan sits on the Pacific Rim volcanic and earthquake belt, with frequent earthquakes. Each time a disaster occurs, Japanese domestic institutions (especially insurance funds) urgently withdraw overseas capital, selling overseas stocks and bonds (mostly U.S. Treasuries and U.S. equities). Large amounts of yen flow back into Japan, directly pushing up the yen exchange rate. I’ll reuse this logic repeatedly later.
The next day, the Nikkei reopened sharply lower again. Market panic replayed a Chernobyl-style nuclear disaster scenario, and the yen continued to appreciate. Relying on my FX long exposure and the wide quoted spread, I actually made money. Then the market gradually stabilized and rebounded, but I can’t recall the specific trigger. To repair Japan’s domestic economy and financial markets, Shinzo Abe launched the landmark economic policy “Abenomics” in 2012. The core goal was to push down the yen: get the Bank of Japan to buy unlimited bonds via yield curve control (YCC), implement aggressive fiscal expansion, and at the same time replace the leadership of Japan’s largest pension fund, GPIF, forcing higher overseas equity and bond allocation and cutting domestic asset holdings. The impact left behind by this policy is still stirring global markets today— the yen exchange rate was directly cut in half.
USD/JPY exchange rate trend: over more than ten years, the currency value has shrunk by more than half.
The white line is the size of the BOJ’s holdings of Japanese government bonds, and the gold line is the yield on 10-year Japanese government bonds. The central bank keeps buying bonds aggressively, completely suppressing long-end yields.
Normalized comparison using early 2012 as the baseline: the yellow line (NDX, NASDAQ) has long significantly outperformed the blue line (NKY, Nikkei index), reflecting that over more than a decade, the U.S. stock market’s growth stocks have been meaningfully stronger than Japan’s.
Deliberately diluting purchasing power for the yen once turned the global asset markets into a carnival: cheap yen became a widely used financing currency for corporates and speculators. But everything has a cost, and Japanese people are deeply resentful. Currency depreciation erodes the value of labor; social order then breeds chaos. While there’s no direct causal relationship between the two, the connection is obvious. Japanese people look gentle and restrained outwardly, yet in 2022 an attacker with a homemade gun openly shot and killed then-former Prime Minister Shinzo Abe, the leader who had dominated the yen depreciation policy that year. This was the extreme consequence of inflation-fueled disorder.
Currency devaluation also breeds xenophobic sentiment. Last winter season, I went to a backcountry ski area in the mountains behind, and had a local confront me, accusing me of hiking into the mountains without buying a lift ticket. I’m a certified wilderness guide and I’m not affiliated with the ski resort. A huge sign in the resort lobby clearly states that you can hike and ski in the backcountry without a lift ticket. After I went over to argue, the other person started ranting, saying foreigners crowding into the ski area create all kinds of trouble. Ironically, that ski resort is actually controlled by a Chinese-funded conglomerate. He was annoyed by foreign tourists flocking to Hokkaido—I relate to that. When USD/JPY is 160, even factoring in international flights, the cost of skiing in Japan is more than half cheaper than in North American ski resorts. In fact, there are more Americans in Hokkaido than Chinese tourists. My favorite volcano-powder secret spots were usually empty in prior years, but last year they were packed to the brim. That said, I have a few powder spots that are rarely visited, so I’m not worried about not having somewhere to ski.
Over the past decade, the yen—having continuously weakened—has kept pushing global asset prices higher. But for wealthy people holding financial assets, this feast will eventually end. The yen is currently the most undervalued currency globally. The U.S. and China—the two biggest economies—have their complaints about this, and Japanese ordinary voters are even more fed up. There are three ways to solve the yen problem, but only one is favored by the U.S. Treasury and Japan’s political circles.
In the following, I will break down the operating logic of three yen-strengthening plans, explain why the third is the official top choice, then describe the political path for this plan to be implemented. Finally—the part everyone cares about most: after large-scale flooding of dollar liquidity, Bitcoin and the crypto market will see a significant surge.
Three plans to strengthen the yen:
The BOJ hikes rates aggressively and wipes out the short-end interest rate spread between the U.S. and Japan;
The Japanese government lobbies domestic public institutions such as GPIF to adjust their investment framework—sell overseas assets and increase domestic holdings;
[Official preferred plan] Japan’s Ministry of Finance will pledge its U.S. Treasuries to the Federal Reserve through the repo tool to obtain dollars, and then in the FX market sell dollars and buy yen.
Before the formal breakdown, many traders will wonder: why discuss yen appreciation now? Over the past decades, countless macro analysts have repeatedly called for a stronger yen and predicted an exit from yen carry trades—yet all of them missed. Two weeks ago, however, the currency authorities of the U.S. and Japan jointly carried out FX intervention—plainly official coordinated manipulation of the exchange rate. What ordinary people would call collusion-motivated manipulation, sovereign states can only describe with a more diplomatic term. U.S. Treasury Secretary Buffalo Bill Bessent publicly stated that the Fed should raise the FIMA (Foreign and International Monetary Authorities’ Repurchase Facility, through which overseas central banks can pledge U.S. Treasuries to borrow dollars from the Fed, helping Japan protect its currency without having to sell U.S. Treasuries in the secondary market) counterparty borrowing limit for the repo facility. This would allow Japan’s Ministry of Finance to use massive U.S. Treasury reserves to support the yen. Japan’s Ministry of Finance also echoed this, saying it is working with the U.S. to push down the USD/JPY exchange rate. Policy makers have already clearly signaled the change: the global monetary order is about to be rewritten. We must take it seriously.
The first two plans won’t work
Plan One: The Bank of Japan hikes rates aggressively
The exchange rate is driven by interest-rate differentials. Currently, the dollar yield is 2.75% higher than Japan’s. Traders borrow yen to exchange for dollars and buy short-term U.S. Treasuries, which allows them to reliably earn positive arbitrage returns. With no-arbitrage pricing logic, USD/JPY must rise and the yen must keep depreciating in order to match this yield spread. The theoretically simplest path for a stronger yen would be for the BOJ to hike rates to match the interest levels of other major central banks, eliminating the spread.
But for the BOJ, rate hikes are almost a dead end. Under more than a decade of YCC, the BOJ has been疯狂 printing money to buy bonds—now it is the largest holder of Japanese government bonds. Hiking rates means bond prices fall, and the BOJ’s mark-to-market losses on its holdings would surge in tandem. In theory, the central bank can print money indefinitely to cover the losses. But once the market realizes the BOJ’s massive paper losses caused by huge money printing, global participants would lose confidence in the yen and no longer accept yen settlement for essential goods like oil, food, and medicine. Although this hasn’t happened yet, the leadership of the central bank is clearly aware of this catastrophic risk. Fear of floating losses is why the BOJ only dares to make small tweaks to interest rates. Even so, the market continues selling long-end JGBs, the yen keeps weakening, and import energy inflation continues to tear at people’s livelihoods.
Japanese politicians also resist rate hikes: fiscal deficits rely on issuing yen-denominated bonds. Higher yields would sharply raise the government’s interest payment costs. Politicians don’t have extra money to hand out consumer tax cuts and other welfare benefits in exchange for votes.
Deeper risk: If central banks rapidly hike rates and the yen strengthens sharply, USD/JPY volatility will skyrocket, forcing all traders holding global stocks and bonds financed with yen to liquidate and exit. It already happened once in July 2024: over just a few trading days, the yen surged from around 160 to 140. At that time, I wrote two in-depth articles (Spirited Away) (Water, Water, Everywhere) to review the episode in detail. Then the newly appointed BOJ Governor Ueda-domo hiked rates more than expected and signaled sustained tightening. The market panicked; speculators who were short yen and long risk assets collectively closed positions. Several hedge-fund trading heads were fired. When the yen hit the 140 level, the Nasdaq 100 and the Nikkei both crashed synchronously by more than 10%. The Bank of Japan immediately backed off. After its August 12 statement that future hikes would fully consider market conditions, it was equivalent to pausing tightening. Once the news broke, the yen depreciated again, and global equities bottomed out and restarted their rally.
After experiencing this bout of violent volatility, the BOJ no longer dares to normalize rates quickly and aggressively. It can’t afford the price of a market crash.
Plan Two: Japanese corporates and public capital collectively dump overseas assets and repatriate yen
By “Japanese industrial capital,” I mean companies and public institutions that hold financial assets. (Nomura dynasty) There’s an anecdote from the book: after the U.S. stock market crash in 1987, Japan’s Ministry of Finance reportedly gave a verbal directive to Nomura Securities to step in and buy U.S. stocks to stabilize the market. Nomura, being a private firm, had no obligation to follow an administrative instruction. But Japanese society values collective action; in corporate operations, priorities are often not shareholders’ returns, but ensuring full employment and national prestige. As long as the government releases a signal that the private sector and institutions should sell mainly overseas assets such as U.S. Treasuries and U.S. stocks, sell dollars, and buy yen to repatriate capital to the home country, Japanese industrial capital will all coordinate to carry out the plan.
By observing GPIF’s operations, you can anticipate the signal of capital repatriation. This trillion-yen pension fund is managed by a board of directors composed of bureaucrats appointed by ministries. In 2014, to support the money-printing easing cycle, Abe spent years replacing GPIF management and pushed the pension fund to significantly increase its overseas equity and bond allocation. GPIF manages between $100 billion and $200 billion in assets. After the investment framework was adjusted in October 2014, it continued to exchange yen to buy U.S. Treasuries and U.S. stocks, creating long-term yen selling pressure. That’s why speculators felt comfortable using cheap yen to lever up and buy global assets, without worrying about whether yen would appreciate when it came time to repay.
At present, Japan’s Minister of Finance, Katayama-domo, has publicly stated that GPIF should adjust its portfolio and prioritize domestic securities while reducing overseas assets. However, GPIF’s management has publicly rebutted this, saying all operations put the interests of insured persons first. These management members are all supporters of Abe’s easing policies, and they will never voluntarily reduce overseas assets. Back then, Abe gradually replaced GPIF directors to complete the policy shift; now Prime Minister Takaichi can only replicate that same personnel adjustment process.
For investors, the signal is very clear: GPIF’s portfolio rules will definitely change in the future. This would force the selling of hundreds of billions of dollars of overseas securities, and the massive capital inflow would boost the yen. But this process would take several years—this is also exactly what U.S. Treasury Secretary Buffalo Bill Bessent fears most. Japan is a core holder of U.S. Treasuries; if it shifts from buyer to persistent seller, it would directly hit the U.S. stock and bond markets that underpin America’s global financial hegemony. The U.S. provides Japan with security guarantees due to geopolitical ties; therefore, Japan cannot massively dump U.S. Treasuries.
Everyone in the market knows the yen is severely undervalued. Both the U.S. and Japan do not want USD/JPY to fall to the level of purchasing power parity—estimated at 90 (current: 160)—and neither country can afford huge accounting losses. After Trump aide Vossh became Chair of the Federal Reserve, the third plan was officially approved. By the time the U.S. Treasury–Fed new agreement takes effect in 2026, besides using the RMP tool to directly finance the Treasury’s short-term bonds and keeping the policy rate below its nominal growth rate, Vossh will hold full authority to implement the entire third plan to support the yen, completing the global economic currency and exchange-rate rebalancing in one move.
Plan Three: A U.S. Treasury bond collateralized repo mechanism (the official best option)
The Japanese Ministry of Finance (MOF) pledges U.S. Treasuries to the Federal Reserve’s FIMA tool to borrow dollars. In the FX market it sells dollars and buys yen. Then it uses the repatriated yen to prop up Japan’s stock market and bond market, thereby pushing up the yen exchange rate.
Bessent’s remarks must be taken seriously. He understands exchange-rate manipulation well—he once became famous for fighting alongside the short campaign against the British pound with George Soros. He has clearly proposed: Japan’s Ministry of Finance does not need to directly sell U.S. Treasuries to obtain dollars to support and protect the yen. Instead, it should use the Federal Reserve’s FIMA repurchase collateral tool, pledge U.S. Treasuries to borrow dollars, and then sell dollars to buy yen. Below, I’ll break down the entire fund flow and the only potential downside risk of this mechanism.
Complete steps of fund flow:
The Japanese Ministry of Finance will pledge U.S. Treasury securities it holds to the Federal Reserve through the FIMA instrument to borrow dollar loans;
The Ministry of Finance sells U.S. dollars in the global foreign exchange market and buys Japanese yen;
The repatriated yen is put into the domestic market to buy Japanese government bonds and Japanese stocks.
Four core impacts of this policy:
The Fed prints money out of thin air to issue FIMA USD loans; the size of the balance sheet expands in sync with the outstanding repo balances;
USD/JPY moves lower and the yen strengthens;
The Ministry of Finance buys large quantities of yen-denominated U.S. debt and suppresses the yields on Japanese bonds;
Yen funds flow into the stock market, lifting Japanese stock prices.
The two parties harmed under this mechanism:
Japan carries loans from U.S. taxpayers. For geopolitical reasons, this debt will never be repaid—effectively endless money printing—which ultimately pushes up inflation in financial assets and real-economy goods. The U.S. can’t force its frontline Asia-Pacific allies to repay and thereby weaken Japan’s willingness to invest in defense.
All speculators shorting the yen: once the exchange-rate trend becomes clear, they must close their positions in a concentrated manner. But the whole suite of tools will smooth USD/JPY volatility; yen carry trades can exit in an orderly fashion over many years rather than crashing instantly.
The core obstacle to this plan not being implemented so far: the current FIMA instrument has a borrowing limit of $60 billion per single counterparty. In the past, the joint Japan-U.S. intervention in the FX market involved more than $100 billion, only pushing the yen up by about 5% in the short term. The effect dissipated within days. To effectively support the yen, the borrowing limit must be completely removed, and access must be broadened so that large Japanese public investment institutions such as GPIF can use the tool.
Management authority for the FIMA instrument belongs to the Federal Reserve’s Foreign Exchange subcommittee. During the COVID-19 period, the FOMC adjusted the tool rules by delegating authority to this committee. Voting members include Chair Vossh, Vice Chair and New York Fed President Williams, and Council Vice Chair Jefferson. The committee can convene at any time; it does not publish meeting minutes or voting records, so the market can only passively receive the results of any adjustments.
The committee will definitely carry out Bessent’s demands: Trump will maintain routine communication with Vossh, and Treasury Secretary Bessent has already clearly informed the White House of the full package of measures to adjust the FIMA rules and balance the USD/JPY exchange rate. Trump fully agrees. The White House will directly issue instructions to Vossh; Vossh’s past actions have shown that he only caters to the will of the top and has no independent policy stance. New York Fed President Williams will continue to expand the balance sheet through the RMP tool. The two-year U.S. Treasury yield remains about 0.5% higher than the effective federal funds rate, clearly signaling future rate hikes. Yet at Vossh’s July meeting, he still refuses to tighten policy. Instead, he sets up five working groups to slowly study policy optimization, with implementation still far off. Like his predecessor Powell and his predecessor’s predecessor Yellen, he is completely obedient to the White House.
The spread between the two-year U.S. Treasury yield and the effective federal funds rate. The market continues to price in rate-hike expectations, but the Fed takes no action.
I can’t predict when Vossh will convene the committee, lift the FIMA limit, and start unrestricted money printing to intervene in USD/JPY. But the probability of this happening is extremely high. I am continuously adding to positions that benefit from the Federal Reserve’s balance sheet expansion: Bitcoin, physical gold, and gold mining stocks.
Liquidity scale and scenario modeling of crypto market conditions
The larger the money-printing scale, the higher the Bitcoin upside. The key question: Can this FIMA instrument release tens of trillions of dollars in liquidity—enough to trigger a full-blown bull market in the crypto space?
At this stage, only U.S. Treasuries can serve as FIMA collateral; in the future, the rules may be loosened. We only calculate the currently available collateral amount:
U.S. Treasuries held by the Japanese government: $1.143 trillion
U.S. Treasuries held by GPIF: $230 billion Total: $1.373 trillion
Reference point: the 2020–2021 COVID easing cycle. The Fed expanded its balance sheet by roughly $4 trillion—everyone has seen the market’s liquidity power firsthand.
The white line shows the Fed’s balance sheet size, and the gold line shows the price of Bitcoin. Their trends are highly positively correlated.
In my previous article, I mentioned that global investment in the AI industry has entered a phase of capital becoming ineffective consumption. The Trump administration hopes to draw new liquidity into U.S. AI capital expenditures rather than boosting crypto prices, but I don’t look favorably on this plan. Today, the leading AI companies have negative capital returns—whether U.S. supercomputing vendors or local AI labs, none can achieve token cost profitability comparable to China. Inefficient capital spending will ultimately breed malignant inflation. Bitcoin’s price will fully reflect this ineffective liquidity. Recently, gold has been rebounding continuously from its lows, suggesting that funds are more willing to flow into hard assets with monetary characteristics, rather than burning money on projects like OpenAI or Musk’s space data centers.
Gold price trend: with expectations of easy liquidity, rebounds are the first to kick off.
Crypto asset allocation approach
Many readers are most concerned about Maelstrom Fund’s portfolio allocation, but the macro logic is the core basis for building positions. Bessent’s policy signals deserve attention from the entire market. He is an expert in exchange-rate manipulation. Adjusting the FIMA rules does not require a vote from elected politicians or Senate hearings. A single resolution by the Federal Reserve’s foreign exchange committee is enough to unlock massive dollar money printing.
When I saw the news that Bessent called for reforms to the FIMA tool, I immediately formed a strong long bias. Mainstream macro analysts all agreed that the USD/JPY trend would fully reverse, so positioning must be done in advance. Money printing is a political tool used by authorities to solve economic predicaments. This time the White House’s policy direction is very explicit: guide residents to enter the market to buy risk assets. Bessent has laid out the entire channel through which liquidity is released. I chose to add to risk assets following the trend.
We are already heavily positioned in Bitcoin; next, we look for more elastic crypto assets:
Ethereum: a value pocket in the large-cap coins. In 2025, all major cryptocurrencies will reach new all-time highs—except Ethereum. At the same time, Ethereum will become the underlying settlement layer for real-world assets (RWA), providing plenty of narrative room.
Ethena: the token ENA’s price crashes by more than 90%. Once dollar liquidity expansion drives Bitcoin higher, the basis yield will quickly repair and a large amount of capital will flood into USDe. With extremely low cost of conviction, $ENA can surge quickly—making it the top choice for a short-term positioning bet.
I haven’t cleared my cash and I’m fully invested in crypto assets. I need to wait for a signal that Vossh will officially adjust the FIMA rules. Watch for market anomalies: insider funds will position themselves early. Gold and the USD/JPY exchange rate may move before the policy announcement. In all asset classes, there have been trading runs where markets front-run policy changes, and the FX gold market will not be an exception.
The cheap-yen era is finally over—I’m glad to see it. Too many foreign tourists are crowding the powder valleys in Hokkaido that I’ve privately kept. I advise all snowboard enthusiasts: if you come to backcountry zones, be sure to switch to split-board touring setups.
Note
[1] The Taiwan Spring Scream Music Festival—one of Asia’s highest-quality niche music festivals; I really like Taiwan.
[2] Going long Japan ETFs = shorting the dollar and going long yen; going short Japan ETFs = going long the dollar and shorting yen.
[3] BOJ: Bank of Japan; GPIF: Japan Government Pension Investment Fund.
[4] FIMA: Foreign and International Monetary Authorities’ Repurchase Facility.
[5] MOF: Japan’s Ministry of Finance.
[6] Short-term Treasuries: U.S. Treasury bills with a remaining maturity of less than one year.
[7] RMP: Reserve Management Purchase, i.e., the Fed’s money-printing tool.