Japanese government bond yields have climbed to levels not seen in decades after the Bank of Japan raised interest rates, adding another source of pressure to Bitcoin and the wider crypto market.
Japan’s 10-year government bond yield rose 10 basis points to 3.075%, its highest level since August 1996. The five-year yield also climbed 10 basis points to a record 2.375%.
The move came during Japan’s first trading session since the BOJ increased its policy rate from 1% to 1.25% last Friday. Japanese markets had been closed through Wednesday because of public holidays.
Yields also increased across longer-term bonds. The 20-year JGB yield rose to 3.9%, while the 30-year yield reached 4.13%.
BOJ Governor Kazuo Ueda has indicated that additional rate increases could follow, while concerns about domestic inflation continue to put pressure on the bond market.
Higher Japanese interest rates are important for global markets because the yen has traditionally been used as a cheap source of funding. Investors could borrow yen at low rates and use the money to invest in assets with higher returns elsewhere.
As Japanese borrowing costs rise, some of those trades can become less attractive.
However, there are currently no clear signs of a major or disorderly unwind of yen-funded trades. The yen actually weakened after the latest BOJ decision instead of strengthening.
That is different from the situation in August 2024, when a stronger yen and changes in Japanese monetary policy contributed to investors quickly reducing leveraged positions across global markets.
Japan’s rising bond yields could also affect where Japanese institutions choose to invest their money. As domestic government bonds offer higher returns, some investors may have less reason to send capital overseas.
Earlier this month, Japan’s 10-year bond yield briefly moved above 3%, leading BlackRock to examine the possibility that Japanese institutions could keep more money at home.
For example, BlackRock used a hypothetical scenario in which 5% of Japan’s roughly $1.1 trillion in U.S. Treasury holdings moved back into Japanese assets. That would represent around $55 billion, but the calculation was only a scenario and not a prediction.
The more immediate pressure on Bitcoin is still coming from the U.S. market.
U.S. Treasury yields jumped after stronger-than-expected economic data increased concerns about inflation and raised expectations that the Federal Reserve could raise interest rates again.
The S&P Global flash U.S. Composite PMI rose to 58.4 in September from 56, reaching its highest level since July 2021.
Fed funds futures later showed a 66% probability of another rate hike in October, up from 53% earlier in the day.
The 10-year U.S. Treasury yield also climbed nearly 14 basis points to 5.106%, its highest level since 2007. The two-year yield rose above 4.89%.
Higher Treasury yields can make traditional fixed-income investments more attractive while putting pressure on risk assets such as cryptocurrencies.
The U.S. dollar also reached its highest level in nearly two months as expectations for another Fed rate increase grew.
Bitcoin has already been dealing with this pressure throughout September as investors reassess inflation, oil prices, interest rates and overall market liquidity.
Japan now adds another factor for crypto traders to watch. If higher JGB yields encourage Japanese investors to keep more capital at home, global capital flows could change. Rising borrowing costs could also affect yen-funded positions.
For now, however, there is no clear evidence that Japan’s bond market is creating a major direct impact on Bitcoin.
The effect on Japanese institutions will also depend on factors such as currency hedging costs, liquidity needs, investment targets and regulatory requirements.
The main pressure on crypto markets remains the combination of high U.S. Treasury yields, a stronger dollar and changing expectations for Federal Reserve policy.
Japan’s rising yields create another potential source of pressure because borrowing costs are moving higher while domestic bonds are becoming more competitive with overseas investments.
