Japan bond yields hit 1996 highs as crypto markets face dual pressures

The sharp rise in domestic borrowing costs comes as the Bank of Japan signals further policy tightening to combat persistent inflation. While the central bank’s move sparked an immediate selloff across the yield curve—with 30-year bond yields climbing to 4.13%—the anticipated collapse of the yen-funded carry trade has yet to materialize. Unlike the liquidity crunch seen in August 2024, the yen weakened following the rate decision, providing a buffer for investors who utilize cheap Japanese financing to fuel leveraged positions in global assets.

Despite the lack of a disorderly unwind, institutional capital remains in flux. BlackRock analysts have noted that as Japanese government debt becomes more competitive, roughly $55 billion could theoretically rotate out of US Treasuries and back into domestic assets. This potential reallocation, coupled with the Federal Reserve’s hawkish stance, creates a challenging environment for digital assets. Bitcoin is currently contending with US 10-year Treasury yields exceeding 5.1% and a strengthening dollar, factors that historically diminish appetite for risk-on assets regardless of developments in Tokyo.