Rising Japanese Bond Yields Threaten Carry Trade and Crypto Markets

Japan’s 10-year government bond yield has climbed to 1.86%, its highest level since 2008 — a move that could trigger a reversal of the yen carry trade, which has injected trillions of dollars of cheap liquidity into global risk assets, including crypto.

As yields rise, Japanese investors — who hold around $1.1 trillion in U.S. Treasuries — may begin pulling capital back home. This shift comes at a difficult moment for the U.S., which is facing massive financing needs and the end of the Federal Reserve’s tightening cycle, potentially adding pressure to global markets.

Analysts warn that declining global liquidity could first appear in the crypto market, as Bitcoin and digital assets sit at the high end of the risk spectrum and react quickly to liquidity changes. If volatility in global bond markets increases, investors may seek safer assets, reducing demand for riskier markets like crypto.