Rising Japanese yields threaten global markets and cryptocurrencies

• Japan's 10-year bond yield reached 1.728%, its highest level since 2008, raising concerns that a global liquidity crunch could impact the cryptocurrency market.
• Rising yields in Japan have reversed a decades-long trend of a weak yen, draining more than $1 trillion from U.S. Treasuries.
• Despite short-term volatility, Bitcoin's fixed supply and decentralization can make it an attractive hedge.

Japan's 10-year government bond yield rose to 1.728%, the highest level since 2008. There are growing concerns that this could tighten global liquidity and impact the virtual currency market.

This “bond shock” has been exacerbated by the contraction in Japan's economy, which shrank by 0.4% in the third quarter due to tariffs, weak exports and increased domestic spending.

Analysts warn that this may not be just a market move. That could mark the end of a three-decade era in which Japan's ultra-low interest rates have indirectly provided huge subsidies to risky assets around the world, including cryptocurrencies.

Japan puts an end to the era of “free money”

Data analyst Shanaka Anslem Perera described the development as the moment when “Japan killed the world's money printers.”

Japan has kept interest rates near zero for decades. This allows investors to borrow cheap yen and invest in high-yield assets around the world. This is a strategy called the yen carry trade. It pumped more than $3.4 trillion into U.S. Treasuries, European bonds, emerging market bonds, tech stocks and even cryptocurrencies, helping to keep borrowing costs low and boosting global asset prices.

Now, with Japan's yields rising and the government rolling out a new $110 billion stimulus package, that flow is starting to reverse.

Major Japanese pension funds, which were once big buyers of U.S. Treasuries, are reportedly moving funds back to Japan because currency hedging makes overseas returns worse.

Perera believes this could drain up to $1.1 trillion from U.S. Treasuries and tighten global liquidity. Historically, Bitcoin and altcoins often come under pressure when US yields rise and liquidity shrinks.

Related: Japan to cut crypto tax from 55% to 20% by 2026: Here's why it's huge for Metaplanet

$3.4 trillion liquidity outflow: Collapse of yen carry trade in cryptocurrencies

Perera pointed out that more than $1.2 trillion of global investment is financed by the cheap yen. These include hedge fund bets on Bitcoin and Ethereum, as well as positions in emerging market stocks and big tech.

As Japanese yields rise, many of these trades may have to be closed, which could create volatility across traditional markets and cryptocurrencies.

Despite these short-term risks, some analysts still see Bitcoin as a potential macro hedge. Japan's debt has risen to 263% of GDP, and rising yields are making it more expensive to manage the debt.

In this environment, Bitcoin's fixed supply and decentralization may look increasingly attractive as protection against systemic risk, currency depreciation, and global debt stress.

Focus on Japan's December meeting

Perera warned that the situation could escalate depending on the Bank of Japan's next actions. The Bank of Japan is expected to decide whether to raise interest rates again on December 18th.

A decision to tighten further could create stress across the market, causing yields to soar and the prices of risk assets, including cryptocurrencies, to soar. After all, while the short-term risks are high, the long-term outlook may favor assets like Bitcoin.

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