Japan's 30-Year Bond Yield Surges to Multi-Decade Highs

Grab a coffee to see how financial markets are performing in what could be the start of a broader global risk-off shift

Good morning and welcome to the US morning crypto news briefing—your essential rundown of the most important developments in crypto for Monday, April 24.

Grab a coffee to see how financial markets are performing in what could be the start of a broader global risk-off shift, particularly as monetary tightening returns to center stage in Asia and the West.

Japan’s 30-Year Bond Yield Surges to Multi-Decade Highs

Japan’s 30-year bond yield has surged to the highest level in 20 years, rising by 12 basis points (bps) to reach 2.345%.

This pushes the yield on the benchmark bond to its strongest since January 2004, and it is deepening the stress in global fixed-income markets.

It bodes poorly for Bitcoin (BTC) and other risk-on assets, Agne Linge, director of growth at decentralized on-chain bank WeFi, believes.

In an email to BeInCrypto, Linge said a major shift might be in the pipeline for risk assets. She cited macroeconomic trends in Japan as they pertain to the current surge in the 30-year bond yield.

“With the bond yield jumping 2.345% to its highest level in 30 years, more risk-averse institutional investors might shun Bitcoin and other speculative assets,” Linge stated.

As Japan’s long-term bond yields rise, it puts more pressure on the Bank of Japan (BoJ) to respond with a possible interest rate hike. Analysts say this could come as early as the end of April.

If the BoJ does tighten policy, it would be a big change for a central bank that has kept monetary conditions very loose for a long time.

“If this forecast plays out as expected, it might lead to dried-up liquidity in the traditional financial market. Since crypto thrives more on excess monetary liquidity, this could also influence the performance of the asset shortly,” she added.

One key aspect is the yen carry trade, a strategy where global investors borrow yen at low rates to invest in assets with higher yields in other countries. This trade does well when Japanese rates are low, and international risk appetite is strong.

What Does It Mean for Bitcoin?

But as Japanese yields go up, and there’s more talk of the BoJ raising interest rates, it becomes less appealing to borrow yen.

This could lead to less liquidity in markets around the world as the carry trade slows down, which could put downward pressure on crypto and other assets that rely on easy money.

Such an outcome would increase the potential for a downturn, which ties into BeInCrypto’s recent analysis of how Bitcoin’s price is at risk as the reverse yen carry trade unwinds.

“The problem today is that those borrowing costs are starting to get more expensive. Traders who were able to access virtually free capital for years are now finding themselves sitting on costly margin positions that they’re potentially being forced to unwind,” 5x Dow & Founders award winner and portfolio manager Michael A. Gayed said recently.

Meanwhile, the Federal Reserve (Fed) is facing growing pressure to cut interest rates. Consumer inflation data from the US CPI and PPI (Consumer Price Index and Producer Price Index, respectively) support this push.

Lge observes that dovish signals in the US could partially offset this emerging hawkish stance from Japan.

“Since the US is a bigger market, the world may respond more toward the country’s monetary policies than Japan,” Linge added.

The Fed cutting interest rates and Japan raising them could create a mixed global liquidity environment. This may spur volatility as investors readjust capital flows across borders.

Still, the BoJ decisively shifting hawkish and putting more emphasis on inflation over yen weakness is especially bad news for the yen carry trade.

This could trigger a broader repricing of risk assets globally, cutting back on speculative capital flows and weakening the favorable liquidity backdrop that crypto markets have enjoyed in recent years.

Amidst these concerns, however, traders and analysts remain optimistic. Analysts at Deribit recently observed that markets went from capitulation to an aggressive bounce.

“Protective/Bear play BTC 75-78k Puts were dumped, and 85-100k Calls were lifted as BTC surged from 75-85k,” they wrote.

Deribit data corroborates this observation, showing that the $100,000 call strike price was the most popular call option as of Monday morning, with the highest open interest. This suggests that traders are placing sizable bets on Bitcoin moving toward this psychological milestone.