Arthur Hayes: Euro/Yen Collapse Imminent — This Is the Final Piece of the Crypto Bull Market Restart

Original Author: Arthur Hayes

Original Translation: TechFlow

TechFlow Editor's Note: BitMEX founder Arthur Hayes reveals his current macro North Star indicator (EUR/JPY), predicting it will fall from 185 to 140 or even lower by June next year. Behind this is US Treasury Secretary Bessent's strategy of "selling euros, buying yen." Hayes believes the eurozone may be heading toward disintegration, which could trigger a massive expansion in dollar liquidity. For crypto market investors, this is a key analysis of the next inflection point in fiat liquidity cycles.

(Any views expressed here are the author's personal opinions and should not be used as a basis for investment decisions, nor should they be construed as advice or recommendations for investment trading.)

It's a Friday in the depths of Patagonian winter, and I'm doing what I should be doing: hiking and skiing in the backcountry. The annual Santa Rosa storm has dumped over a meter of fresh snow on the high mountains, but it needs colder temperatures and several days to stabilize the snowpack and reduce avalanche risk. The clouds have lifted high enough that visibility allows for one run on a south-facing bowl. In the Southern Hemisphere, south-facing slopes receive the least sunlight, which means the best powder. This isn't Jaypow, but it's the best snow I can ski in August.

For financial markets, this is a special Friday, because Fed Chair "Weasel" Warsh is speaking in Jackson Hole, another of my favorite ski towns... Anyone want to ski Corbet's? But I'm fully focused on the present, because the snowpack isn't stable yet, and I'm running through escape routes in my head in case we trigger an avalanche. A few minutes ago, the guide and I discussed the slope we're about to ski to reduce the angle and avalanche risk.

I'd rather spend my time skiing and surfing than "watching the tape." But as the CIO of a family office, I always need to find ways to make money. Skiing is an expensive sport. Given my lifestyle, I have to focus on one or two price indicators that tell me whether the velocity of fiat liquidity injection is accelerating or decelerating. Based on these inputs, I quickly turn my portfolio long or to cash; I never short. These indicators change over time, and in this article, I want to explain why my current macro North Star is the euro-yen exchange rate, namely EURJPY.

Before explaining to readers why I believe EUR/JPY will fall from 185 to 140 or lower by June next year, and how this will foreshadow a massive increase in dollar liquidity, I want to first discuss why I chose this indicator. In short, US Treasury Secretary Scott "Buffalo Bill" Bessent is a serial killer who preys on so-called American allies that should have been strengthening against the dollar. He has made the end state crystal clear in speech after speech, and in July and August of this year, he told us exactly how he intends to get there. Despite being the most powerful Treasury Secretary in the world, wielding enormous monetary and regulatory power to manipulate markets, he cannot act unilaterally indefinitely due to the sheer size of the US Treasury market and the foreign exchange market. He needs profit-seeking private investors to participate in his operations. That's why he explicitly stated he wants us to sell euros and buy yen.

A core thesis of this article is that "Buffalo Bill" Bessent has a coherent strategy driving his actions. I admit I'm blowing smoke up his ass; sometimes you have to say nice things about the guy who gets to press the "print money" button. Most of the time, the global political class is just a bunch of reactive monkeys concerned only with the next election; long-term strategy seems nonexistent. But even if Bessent is just throwing darts at a board, the chain reaction he's set in motion seems to achieve the goals of "Pax Americana," whether intentional or not.

Make America Great Again

This is the greatest political slogan of all time because it can mean both nothing and everything. Make America Great Again—great for whom? When was it ever great? Until the mid-20th century, America was only great for property-owning native-born American men; for everyone else, it was a pile of shit. How far back do we need to go? It exploits misplaced nostalgia and intellectual laziness. What a perfect political slogan; everyone can be a winner in their own imagination.

I've said it before, and I'll say it again. The Trump administration, and whichever team takes over in 2028 regardless of party color, wants to restore the American industrial economy to the dominance it held during the decades from 1945 to 1980. After 1980, first Japan, and then the Asian Tigers led by China, including South Korea and Taiwan, became the manufacturers of all globally significant goods. Conceptually, each country followed the same policy mix to achieve this mercantilist success: erect tariffs to keep foreign goods out, and devalue the domestic currency against major trading partners.

America's real competitor is China, which executes this playbook skillfully. The Chinese market is closed to American companies, and once the leaders of "Pax Americana" feel economically strong enough to withstand the pain of decoupling, the American market will also close to Chinese companies. This means the most important economic battleground becomes: who do Europeans import from? Because Europe is the next largest economic bloc that can absorb either American or Chinese exports. For America to win in Europe, several conditions must be met: the dollar must be weaker than the euro, EU member states must act individually rather than collectively so America can divide and conquer, and the dollar must be weaker than the other Asian Tiger currencies (yen for Japan, won for South Korea, NT dollar for Taiwan).

I just wrote in my previous article that I believe EUR/JPY will fall due to the actions of Bessent and others; how does this align with a weaker EUR/USD?

As always, to destroy Europe, one must first weaken Germany. The euro's structure allows Germany to effectively devalue the Deutsche Mark against member states, thereby prospering through exports. This is how Europe paid for German reunification. As a result, Germany holds one of the largest net portfolio balances globally, on par with China and Japan, the two most successful mercantilist economies since WWII. To compete effectively with Germany in the European market, the dollar must depreciate against the Deutsche Mark, whether explicitly or implicitly. This means either Germany (explicitly) exits the euro, or France (implicitly) exits the euro. The euro was a flawed concept from the start, but European politics combined with the ECB's reaction function to market pressures that Japan exerts on European government bond markets will ultimately end this fake currency. [1]

A few weeks ago, Bessent announced it was showtime by selling euros and buying yen through the Exchange Stabilization Fund. [2] So, I know that as a profit-seeking private investor, my duty is to follow his lead. Let me use some useful charts to begin the core of this article, explaining to readers how and why the euro will eventually collapse, sooner rather than later.

What is the Euro?

The euro is a bribe. Germany agreed to remain militarily weak; in exchange, it could dump exports tariff-free into the rest of the European market. This system always balanced out, but under a common currency, the exchange rate for German goods would not appreciate, and its banking system eventually accumulated excess euros. As a result, the savings Germany earned from export revenue had to go somewhere, so it lent these euros to trading counterparts, giving them the ability to buy more goods. This is how Greeks could borrow at rates close to Germans. This imbalance is reflected in the Target2 system: the German banking system is a net creditor, while other European banks are debtors. Furthermore, Germany became so "rich" through the euro bribe scheme that it could become one of France's largest creditors. France's welfare state exists only because of the euro and the common market. Both of these points will become important later in the article.

Germans are not thrifty, and the rest of Europe is not lazy. German credit corresponds to French debt. This is an accounting identity, unrelated to culture. Culture follows money and trade flows, not the other way around.

The structural problem with the euro is that imbalances eventually become too large, and the common people will want their national sovereignty back. German civilians want their government to spend more, enhancing labor rights and protections. Other Europeans want their jobs back and an end to the boom-bust credit cycle. This cycle is determined by whether the German banking system demands credit for Europe.

The EU political class and the ECB cannot allow the civilians of Germany and other European nations to decide for themselves, or they will lose power. This is why nationalist-first parties on both the left and right across Europe are reviled by the rulers in Brussels. This is also why the centrists will go to any length to suppress the people's right to self-determination.

This is not an article about the euro. If you don't understand how I arrived at these views, please start by correctly understanding global trade, and read and listen to Michael Pettis.

First Down, Then Up

France is the second-largest economy in Europe, but it's also the weakest credit. How do I know France is the weakest credit? Because French savers think so too.

This is a chart of Target2 balances from 2021 to the present. France (white) started as a net creditor. That is, the scale of euros that Europeans deposited into the French banking system exceeded what French savers transferred to other European banks. But starting in 2021, this trend reversed, and France became the largest debtor in the Target2 system. This means French savers and other Europeans are both withdrawing euros from French banks and placing them elsewhere in the eurozone. Why are they doing this?

These are the 10-year government bond yields for France (white), Spain (green), and Italy (gold). Spain and Italy are two of the largest and weakest economies in the eurozone. Measured by 10-year yields, France's government bond market has gone from the strongest to the weakest.

France borrows the most because its government spending is about 60% of the economy; only Finland has a higher government share. Therefore, France must exponentially increase its borrowing each year to cover its widening deficit. This is dragging on yields.

Unfortunately for France, it now relies more on foreign (mainly German and Japanese) hot money to finance its rising deficit.

As bad as this is, the real political question is: do the French people want a bigger or smaller government? Across the entire political spectrum, the French agree that the problem with France is that the government isn't big enough. Remember, this country was paralyzed by strikes. At the time, people were protesting against that cocaine-sniffing schoolteacher bastard President Macron, who proposed lowering the retirement age by a few years. Ahead of the 2027 presidential election, polling behind Marine Le Pen is hard-left presidential candidate Jean-Luc Mélenchon. On August 25, 2025, after Finance Minister Bayrou spoke, Mélenchon had these powerful words for foreign creditors:

Don't spread panic to provoke a crisis. This 3 trillion in debt is not ours. 60% belongs to foreign investors. Let them be careful with France. If they want to amuse themselves by bringing down France, they will pay the price.

Now, can you blame European savers, including French savers, for pulling their money from the front lines? Capital controls and financial repression are coming to France. Because it's the only option to maintain government spending at the level the public expects.

On this powder keg, Bessent has struck a match. The fire will spread to its conclusion by next year. Schrödinger's Euro will rise from the flames.

Japan: The Match

As I wrote in "Yen-Quake," the Bank of Japan refuses to raise interest rates. The bureaucrats in power don't want their institution to bear the losses and blame that come with a yen appreciation. Therefore, the government will cajole the private and quasi-public sectors (i.e., Japan Inc.) into selling foreign assets and repatriating capital, thereby pushing the yen higher. The problem, as I said, is that the largest pool of assets held by Japanese entities is American assets. The leaders of Pax Americana will not allow one of the largest holders of their financial assets to dump them to solve domestic problems. The threat is: if you don't do what America says, you'll face China alone. South Korea is currently getting a taste of this, as Trump has scaled back military exercises and diverted Patriot interceptor missiles originally scheduled for delivery to the Middle East. To avoid stepping on historical and cultural landmines, Japan, South Korea, Taiwan, and most North Asian countries find it easier to do what the ugly Americans say than to re-learn Mandarin. [3] I don't think a hot war would break out in North Asia without the US military presence. But fear and historical hatred are real and influence today's political and economic decisions.

The solution Bessent offers is that Japan, South Korea, Taiwan, and other compliant Asian export nations holding large amounts of US assets can, instead of selling US Treasuries, swap them for dollars via the Fed's FIMA repo facility. [4] Bessent and the Fed, in order to advance American state policy, are willing to print money to prevent the disorderly collapse of the monetary system like after the 1997 Asian Financial Crisis. I think Trump would even offer this deal to China if Xi Jinping were willing to limit his competition with America to certain traded goods. Unfortunately for Xi, extricating China from its mercantilist economic policies would likely anger powerful and entrenched political interests. Therefore, this play cannot be executed.

European assets are the next largest pool of assets that Japan and other Asian export nations can sell. Bessent has given the green light to suppress Europe by selling euros. In the most recent yen intervention, he sold euros and bought yen through the ESF without prior notice to the ECB. This violates the comity agreement between central banks. Trump, meanwhile, brought out the big stick, demonstrating the consequences for Asian nations under the US security umbrella near China that don't comply. South Korea's sin was refusing to substantively participate in Trump's war against Iran. Ahead of Xi Jinping's visit to the US later this month, it will be interesting to watch what Trump says and does.

While we don't have an exact record of "country X sold asset Y on date Z," we can look at the price of French bonds. That's what happened after July 10, when Japanese Ministry of Finance official Katayama announced that Japan Inc. must repatriate capital.

The 10-year OAT (white) yield rose 0.38%, while the 10-year US Treasury yield rose 0.22%. Japan Inc., upon receiving its orders, went from being a marginal buyer to a seller of French government bonds. The timing couldn't be worse.

Beyond French government bonds, foreigners hold about 71% of French bank debt. That will also be sold.

To see the pain coming for French banks, look at this chart. It compares BNP Paribas against the Euro Stoxx index (white line) and the Euro Stoxx Banks index (gold line). BNP is the largest French bank. More importantly, it's a global systemically important bank and a major lender to US hedge funds. I'll come back to why this matters shortly. [5] August was terrible. As foreigners sell their bonds and depositors flee to Germany and Switzerland while they still can, BNP's underperformance will only worsen. Armored tanks or bayonets—I know which I'd choose...

It didn't have to be this way. The ECB has designed various money-printing programs. These are specifically designed to destroy free-market pricing of European debt when European debt signals question the viability of the euro project. But the ECB applies a political test to a government before it helps. In France's case: do you agree that Brussels matters more than Paris? If yes, the ECB will print euros and buy the assets that foreigners are dumping. If no, the ECB will sit on its hands and let