The Japanese yen depreciated dramatically since the Federal Reserve’s aggressive rate-hike campaign began in March 2022. This is one of the worst exchange rate fluctuations ever recorded.

Due to the volatility, traders on digital asset exchanges in Japan are turning to bitcoin (BTC), which is the leading cryptocurrency worldwide by market value. Bitcoin has been widely marketed as a hedge for traditional finance.

According to Kaiko, a Paris-based data tracking company, the share of bitcoin traded on Japanese exchanges increased from 69% up to 80% during the first half of the year. Total trading volume on Japanese exchanges reached $4 billion in the month of June, a 60 percent increase year-to date.

The bitcoin-Japanese-yen (BTC/JPY), pair’s share in the total volume of bitcoin-fiat pairs also increased this year, from 4% up to 11%.

Dessislava Aust, research analyst for Kaiko, stated in an email that “it signals rising appetite on Japanese markets.” Kaiko’s aggregated figures for Japan are based on data from Bitflyer Coincheck Bitbank Quoine and Zaif.

Bitcoin is considered to be a form of digital gold, a hedge for traditional finance and fiat currency that are said not to have a fixed or intrinsic value. They are also not backed up by any tangible assets. Citizens of countries with high inflation and volatile fiat currencies previously adopted digital asset.

Bitcoin is up 84% this year to more than $30,000, while trading at premiums on Japanese exchanges.

Dessislava Aubert, research analyst with Kaiko, stated in an email that “BTC has traded on average at a premium between 0.5% to 1.25% this year”

The yen’s depreciation against the U.S. Dollar has increased by 6.3% this year. This is a continuation of the nearly 14% decline that occurred last year. The yen’s fall is primarily due to the divergent monetary policies adopted by the Federal Reserve, and the Bank of Japan. Both have maintained a pro-easing position amid global tightening.

The Japanese stock exchange has seen a rise in volumes. (Kaiko) (Kaiko)

Chart shows that trading on Japan-focused markets has increased faster than Korean exchanges and Coinbase, which is listed on Nasdaq.

This trend could continue, as Japan has an established regulatory framework. In contrast, the U.S. relies on enforcement for industry oversight. Japan recently passed legislation for stablecoins to protect investors.

As simmering speculation grows that the Bank of Japan may announce a more hawkish policy next week, the yen will continue to be volatile.

The unthinkable has happened – Japan’s inflation rate is on the rise. A key measure that excludes energy components recently reached a four decade high. After decades of deflation, higher inflation may lead to a greater demand for bitcoin and other perceived alternatives.

Parikshit Miishra is the editor.