Japan’s government bond yields have jumped to record highs. The spike comes after the government revealed its $110 billion stimulus package plan, challenging traditional economic expectations.
This dramatic development signals a shift in global finance, putting pressure on an estimated $20 trillion carry trade. Moreover, it could have significant implications for cryptocurrencies, including Bitcoin (BTC).
Japan’s Historic Yield Surge Upends Market Logic
Japan’s bond market surprised investors this week. The Kobeissi Letter reported that the 40-year yield soared to 3.697%, the highest since the security’s launch in 2007.
The 20-year bond yield reached 2.80%, while the 30-year bond hit 3.334%, the highest ever recorded. Lastly, the 10-year yield has increased by 70 basis points over the past 12 months.
The yield escalation followed the government’s announcement of a stimulus package exceeding 17 trillion yen, equivalent to approximately $110 billion. This is aimed at countering inflationary pressures and revitalizing growth.
But why is this concerning? Shanaka Anslem Perera highlighted that,
“Economics textbooks say stimulus announcements lower bond yields by promising growth. Japan’s market did the exact opposite. Yields spiked 6.5 basis points in a single session.”
Perera described the move as a vote of no confidence in Japan’s sovereign debt sustainability. The country’s debt load stands at approximately 250% of its GDP, and interest payments already account for about 23% of annual tax revenue.
The analyst estimates that every 100-basis-point increase in yields adds more than 2.8 trillion yen to the government’s yearly financing burden.
“The math stops working above 4%. The market just priced in that threshold approaching,” he added.
The implications extend well beyond Japan. Rising long-term yields threaten the foundation of the long-standing yen carry trade, in which global investors borrow at low rates in yen and deploy capital into higher-yielding markets abroad.
“The largest arbitrage trade in human history….Built on Japanese rates staying frozen forever. That assumption died yesterday,” Perera said.
The analyst explained that when bond yields rise, the yen carry trade begins to break down. Higher yields make borrowing in yen more expensive, and the currency tends to strengthen as money flows back into Japan.
That means anyone who borrowed yen suddenly faces higher repayment costs. He also pointed out that Wellington Management expects the yen to rise 4–8% in the next six months.
As this happens, many leveraged investments become unprofitable. Positions are forced to unwind, margin calls hit, and an estimated $20 trillion linked to yen-funded trades can begin moving in the opposite direction.
“Correlation studies show 0.55 relationship between yen carry unwinding and S&P 500 drops. Emerging market currencies fall 1-3% within thirty days. US Treasury yields jump 15-40 basis points from reduced Japanese demand. Your 401k holds positions funded by yen loans. Your tech stocks trade at valuations assuming cheap leverage continues. Your emerging market bonds depend on foreign capital that’s now leaving,” Perera noted.
He also outlined that the next “critical test” is the 40-year bond auction scheduled for November 20. A weak bid-to-cover ratio would signal insufficient demand for long-dated Japanese debt, potentially amplifying market volatility. According to Perera,
“If bid-to-cover falls below 2.5 times, it confirms insufficient demand. Failed auctions create death spirals. Weak demand forces higher yields. Higher yields accelerate unwinding. More selling. Weaker demand.”
Bitcoin and Risk Assets Under Strain
An analyst also pointed out that the unwind could spill over into several parts of the global market, including the cryptocurrency sector. As yields on Japanese bonds rise, they become more appealing relative to overseas assets.
Investors may then start trimming their foreign positions and moving capital back into Japan, which removes support from risk-oriented markets worldwide. If this pattern continues, it could trigger a broad selling of international assets, most notably US Treasuries and equity ETFs.
“How could this affect Bitcoin? When liquidity tightens, all risk assets suffer. Gold, tech stock and of course crypto react first. Because investors start hedging, not risking. Alongside this: the dollar strengthens due to capital inflow. And a strong dollar always puts pressure on all non-leveraged assets. Bitcoin also dropped during the periods of 2015, 2018 and 2022. Not because it was weak, but because liquidity was,” the post read.
This shift is hitting Bitcoin at a moment when it is already under pressure from cooling institutional demand and softer ETF inflows. The analyst warned that if capital repatriation accelerates, Bitcoin could face another leg down. In that case, the pullback might end up being sharper than many investors expect
