The Japanese yen (JPY) is making a notable ascent against the U.S. dollar (USD), outshining other major currencies. This surge is reminiscent of early August’s market turbulence, which saw significant declines in global stock markets and Bitcoin (BTC).

Since late Thursday, the yen has gained 2.4%, reaching 145 per dollar. This movement halts its prior depreciation from the August 5th low of 141.68, signaling a renewed preference for the “anti-risk” currency. The yen has also strengthened by over 1% against the Australian dollar, a key indicator of market risk sentiment, and is exhibiting even more robust performance against the euro and the British pound.

This foreign exchange activity mirrors the yen’s strong performance at the end of July and the beginning of August, which triggered the unwinding of carry trades. These risk-on investments, typically funded by relatively cheap yen-denominated loans, became less attractive as borrowing the Japanese currency grew more expensive.

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The subsequent reduction in risk exposure in traditional markets also impacted Bitcoin and the broader cryptocurrency market. BTC, which plummeted from around $70,000 to $50,000 within eight days leading up to August 5th, eventually rebounded to $60,000 in tandem with a recovery in USD/JPY.

“Yen strength is creating a negative feedback loop, with stop-loss orders being triggered and overstretched carry trades being unwound, disrupting global risk assets,” commented renowned trader Simon Ree on X.

In his latest analysis, Andrei Kazantsev, the head of Goldman Sachs’ crypto-linked trading desk, echoed Ree’s observations. He explained that Bitcoin and Ether were caught in the yen carry trade unwind and the global Value at Risk (VAR) shock of August 5th. VAR represents the maximum expected loss a market can endure over a specific period. A sudden increase forces traders to reduce their exposure to riskier assets.

As such, the yen’s renewed strength demands attention from cryptocurrency traders. ING noted that the yen’s rally from 161 to 141.68 per dollar over three weeks in early August has set a precedent for buying the yen on dips.

“A 20-big figure drop in USD/JPY could significantly influence future expectations and behaviors,” ING stated in a note to clients on August 16th. “This shift likely means a greater inclination to buy the yen at weaker levels, pushing the risk toward a strengthening bias.”

However, some analysts caution that the unwinding of carry trades could resume in the coming weeks, driven by the U.S. economy and the Federal Open Market Committee’s (FOMC) next interest-rate decision, scheduled for mid-September.

“The Fed funds futures currently suggest a 50% probability of a 50-basis-point rate hike in September. However, we expect these odds to diminish as we approach the FOMC meeting due to generally favorable economic data. Should the Fed implement a 50-basis-point cut, we anticipate an initial positive market reaction, but a subsequent sell-off could occur as concerns about the economy and yen strength revive the carry trade unwind,” noted Arnim Holzer, global macro strategist at Easterly EAB Risk Solutions, in an email.