• BTC drew a slight premium in Japanese markets on Monday as the yen swung wildly in holiday-thinned trading.

• FX volatility is on the rise, and it could impact the crypto market, one observer said.

Bitcoin {{BTC}} traded at a slight premium on Japanese markets on Monday as the sliding yen (JPY) suddenly switched gears and surged against the greenback, bearing all hallmarks of central bank intervention.

The bitcoin-japanese yen (BTC/JPY) pair on leading Japanese crypto exchange bitFlyer traded at roughly 0.2% premium to bitcoin’s dollar-denominated price on the Nasdaq-listed Coinbase (COIN), data from charting from TradingView show. CoinDesk reached out to bitFlyer for comments and awaited a response at press time.

The leading cryptocurrency by market value has consistently drawn a premium in JPY terms in recent weeks. Early this month, the premium rose as high as 1.49%, the highest since March 2020, a sign of traders diversifying into alternative assets to bypass the yen volatility.

“Currently, the bitcoin premium on Japanese markets is hovering around 0.3%-0.4%, having declined from over 1% in mid-April and a yearly high of 1.7% reached in mid-March. However, this could change. Overall, FX volatility is rising due to increasingly divergent monetary policy expectations and geopolitical stress, and this could impact crypto,” Dessislava Aubert, an analyst at Paris-based Kaiko, told CoinDesk.

The yen swung wildly in a holiday-thinned Japanese trading session on Monday, initially sliding to 160 percentage in points (pips) per U.S. dollar, the lowest in 34 years, only to bounce back 500 pips to 155 pips per USD during the early European hours.

The recovery’s speed and magnitude spurred talks of BOJ intervening or selling dollars to put a floor under the yen. Local media neither confirmed nor denied the rumored BOJ action, saying the low liquidity conditions and caution about potential central bank action near 160 pips led to the sudden yen surge.

The yen has fallen out of investor favor as burgeoning public debt keeps the Bank of Japan (BOJ) from matching U.S. interest rates. In other words, Japan’s fiscal crisis has been playing out in the FX market.

The Federal Reserve (Fed) is scheduled to hold a policy meeting this week, during which it could stress the need to keep rates elevated at 5.25% for longer amid sticky inflation.

Last week, the BOJ kept the benchmark interest rate unchanged at 0-0.1%, having lifted it above zero early this year. The central bank maintained an ultra-lose monetary policy through the 2022-23 Fed tightening cycle, motivating traders to sell the yen.