Sharp rise in domestic yields threatens long-standing flows into global risk assets, including crypto
A rapid climb in Japanese government bond yields is drawing renewed attention to the fragility of global liquidity conditions, with analysts warning that the shift could reverberate across equities, emerging-market debt, and digital assets.
Japan’s benchmark 10-year government bond yield reached 1.86% on Monday — its highest level since 2008 — marking a stark departure from the country’s long-standing low-rate environment. Yields have nearly doubled in the past year, while the two-year yield crossed 1% for the first time in more than a decade.
Although the absolute numbers may appear modest, the move is significant for markets that have relied on the country’s historically cheap funding. For years, investors borrowed yen at ultra-low rates to purchase higher-yielding assets abroad, fueling what became known as the yen carry trade. The strategy channeled substantial liquidity into U.S. Treasuries, European bonds and a wide spectrum of risk assets.
With domestic yields rising, the economics of that trade are shifting. “when an anchor market begins to reprice after decades of stability, capital naturally starts reassessing where it belongs.” Japan remains the largest foreign holder of U.S. Treasury securities, with roughly $1.1 trillion in exposure — meaning even a partial unwind could tighten global financial conditions.
Crypto markets may feel the impact quickly. Digital assets tend to respond sharply to changes in global liquidity, and analysts say reduced leverage and repatriated capital could dampen speculative flows.
“Crypto is usually the first place where all of this shows up. It sits at the highest end of the risk spectrum, so even small shifts in liquidity lead to sharp moves,” said “Wukong.”
If broader bond markets continue to reprice, investors may opt for safer assets, raising the possibility of further pressure across high-volatility sectors.
Disclaimer
This content is for informational purposes only and does not constitute financial, investment, or legal advice. Cryptocurrency trading involves risk and may result in financial loss.