Bond traders in Tokyo burned a new number on their screens this week: 3.5%.
For most of the past 20 years, Japan’s long end was a place where the world forgot about interest rates. If you were a pension fund trying to adjust its debt, a bank trying to secure liquidity, or a global macro desk looking for cheap capital, Japanese government bonds were sitting quietly in the corner of the room.
That corner is noisy.
Japan’s 30-year government bond yield is It rose to about 3.5%, a level that would have sounded ridiculous back in the days when “Japan” and “almost zero” were essentially the same. Same sentence. Trading economics marks this move in early January as another step forward after a year of prolonged and stable pressure.
If you are only trading Bitcoin, you may want to scroll past the Japanese bond chart and back to the candlesticks. The problem is that Japan is not just another country’s bond market. Japan is the pillar that supports the entire world’s currency prices.
As that pillar changed, vibrations were transmitted and Bitcoin became part of the same global risk system as everything else.
Changes in Japan important for virtual currencies
Japan is emerging from a generation of markets, cheap financing, abundant central bank liquidity and a sense that interest rates are fixed forever.
The Bank of Japan has raised its short-term policy rate to 0.75%, with officials publicly suggesting it can continue tightening if the economy and prices continue as expected.
Reuters reported that Governor Kazuo Ueda reiterated that policy this week, and the Bank of Japan itself has set its next meeting for January 22-23, a date that has significance far beyond Tokyo.
Another big feature is liquidity.
Japan’s monetary base, an easy way to see how much cash is floating around at the Bank of Japan, will decline 4.9% year-on-year in 2025, and fell 9.8% to about 594.19 trillion yen in December, falling below 600 trillion yen for the first time since 2020. The Bank of Japan publishes and releases the underlying series based on the following criteria: monetary base.
This can be thought of as Japan moving away from its role as the world’s most reliable provider of cheap liquidity.
Bitcoin values its role even when day-to-day correlations seem confusing.
How Japan will reach Bitcoin, starting with the plumbing
Cryptocurrency stories typically travel quickly, including inflation hedges, digital gold, stores of value, and rebel assets. Market plumbing moves faster.
There are three ways a rise in Japan’s long-term yields could hurt Bitcoin. There is no need to talk about cryptocurrencies unique to Japan. In a world where leverage is ubiquitous, there is a need for Bitcoin to function like a liquid, global risk asset.
Yen funding channel, carry trade unwinding, leverage reduction
For many years, the yen was the funding currency. Borrow yen cheaply, buy something with a higher yield, apply leverage, and repeat. If Japanese yields rise and the yen starts moving in the wrong direction, that structure becomes uncomfortable. Uncomfortable leverage is reduced.
The cleanest recent example comes from the BIS, which investigated the August 2024 market turmoil and unwinding of carry trades. BIS explained how deleveraging and margin pressures had amplified volatility, and also cited a rough estimate of around 40 trillion yen ($250 billion) related to the event.
You don’t have to believe in exact numbers. What’s important is the mechanism. Once yen-linked trades are unwound, multiple asset classes can be pulled out at once.
Bitcoin is now part of that ecosystem. The majority of BTC’s trading volume is in derivatives, with leverage built into the market structure and assets traded 24/7. When macro desks are risk averse, cryptocurrencies are often listed because they can be sold quickly.
The term premium channel, global risk prices rise due to rise in long-term interest rates
Japan’s moves are important because they could push up global term premiums and because Japanese institutions are major holders of overseas assets. If domestic yields become more competitive, the incentive to hold overseas duration will change at the last minute.
The global situation can be seen by looking at the United States, where 30-year government bond yields remain high.
The financial environment will become tighter due to the rise in long-term interest rates. This tends to put pressure on assets that rely on abundant liquidity, easy leverage, and optimistic discount rates. Bitcoin often sits in that bucket during tightening stages, even if the story people tell themselves is otherwise.
The IMF has been clear about this vulnerability. Its Global Financial Stability Report pointed to soaring valuations, increasing pressure on sovereign debt markets, and the growing role of non-bank financial institutions. When long-term sovereign markets become volatile, that stress can be transmitted through funds, margin, and collateral.
Fiscal trust channel, bond wobble, and Bitcoin become a hot topic
There is a second-order effect that can support Bitcoin, and it starts with another emotion: trust.
As long-term bond yields soar, markets begin to talk about fiscal sustainability, debt servicing costs and who will buy supply. Invesco’s note on rising Japanese yields frames the move through fiscal concerns and changing market dynamics, against the backdrop of the Bank of Japan’s changing influence in bond markets.
Over time, this type of conversation could attract some investors, especially those who already view sovereign debt as a slow-motion problem. The difficult part is timing. In the short term, disorderly movements in bonds typically hit risk appetite first, then narrative.
Short-term setup, three paths from here
If you want to understand what Japan’s 3.5% long end means for Bitcoin, the cleanest approach is to consider the scenario and monitor the signals.
Scenario 1, gentle hardship
Yields continue to rise, bids are cleared, the yen remains relatively stable, and the Bank of Japan continues to signal a gradual exit. This could still be a headwind for Bitcoin, primarily due to the gradual tightening of global financial conditions and the steady reminder that the days of free money are over.
In this world, BTC can still go up, and cryptocurrencies can always find their own catalysts, but the macro winds are up against them.
Scenario 2, nuisance spikes.
Long-term interest rates are soaring, demand looks volatile, the yen is rapidly appreciating, and volatility is spiking across markets. This is the scenario where the yen funding channel is strongest.
The BIS story for August 2024 is the template. Deleveraging and margining and positioning between assets can result in rapid cascades. Bitcoin tends to suffer here because it is liquid and trades around the clock. Also, because there is no closing bell, stress tends to appear sooner.
Scenario 3: Bank of Japan flinches
If yields rise too quickly, the Bank of Japan could change its stance and delay normalization or find a way to stabilize long-term interest rates. This is interpreted as a liquidity easing signal and is important because markets trade based on expectations.
The trigger for this scenario is Bitcoin headline. The Bank of Japan’s responsiveness, language, pace of balance sheet outflows and how officials will talk about the importance of financial conditions ahead of the Jan. 22-23 meeting..
Simple dashboard if you want to track things like crypto transactions
You don’t need a PhD in rates to monitor the right variables.
Start with the circle and long end and add the flow gauge.
- US dollar/yen movementReuters notes that the rapid appreciation of the yen is a warning sign of carry stress, with the yen hovering around 157 yen to the dollar as a risk of price tightening in the market.
- Japan’s 30 year yieldfollow us on MarketWatch or Investing.com.
- Flow of securities across Japan’s bordersThe Ministry of Finance releases weekly data under “International Transactions in Securities,” which is one of the best real-time windows into whether Japan is buying overseas assets or drawing funds into the country.
If these three start moving together, and the yen rises, long-term interest rates rise, and repatriation rises, we have to assume that global risks will start to be felt and Bitcoin will enter explosive territory.
The Bitcoin angle that continues to surprise people
Here’s another idea.
Bitcoin doesn’t always react to macro news in the clean way people expect. In 2023, a New York Fed paper, “The Bitcoin Macro Disconnect,” found that on the daytime horizon, Bitcoin can appear strangely “orthogonal” to standard macroeconomic news surprises.
This is important because traders remain overconfident, see rate fluctuations, assume Bitcoin is unfazed, and the macro channel is broken.
Volatility then emerges through positioning, leverage, and collateral, resulting in bursts of movement.
The end of Japan’s 3.5% long run is a reminder that the world is changing beneath the surface. Japan is coming off zero, the Bank of Japan is shrinking its footprint, data liquidity is drying up, and bond yields are bringing the fiscal debate back into the light.
Bitcoin is downstream from all of that.
The next time you look at a Japanese government bond chart, treat it like the weather. You don’t need to know every detail of how storms form. All you need to know is when a storm will occur and if you are not being overly affected when it does occur.
(Tag translation) Bitcoin
