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Japanese government bond yields have jumped to record levels. This growth comes after the government unveiled its plan for a $110 billion stimulus package, defying conventional economic expectations.
These dramatic developments signal a change in global finance, putting pressure on the estimated 20 trillion dollars in revenue trading activity worldwide. In addition, it could have major implications for cryptocurrencies, including Bitcoin (BTC).
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Japan’s historical high performance reflects market logic
Japan’s bond market surprised investors this week. The Kobeissi Letter said the yield on the 40-year bond rose to 3.697%, the highest since the note was launched in 2007.
The 20-year bond yield has arrived to 2.80%, while 30-year bonds reached 3.334%, which is the highest number ever recorded. Finally, the 10-year yield has risen 70 basis points over the past 12 months.
The increase in yields was followed by the announcement of the government A stimulus package worth more than ¥17 trillion, This is equivalent to about $110 billion. This aims to counter inflationary pressures and stimulate growth.
But why is this worrying? Chanca Anselm Pereira said that,
“The stimulus announcements pushed bond yields to a promising rise,” the economists wrote. “But the Japanese market did the opposite. Yields rose 6.5 basis points in one session.”
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Pereira described the move as a vote of no confidence in the sustainability of Japan’s sovereign debt. The country’s debt burden is about 250% of its GDP, and interest payments already make up about 23% of its GDP. Annual tax revenue.
Analysts estimate that every 100 basis point increase in yields would add more than 2.8 trillion yen to… Annual funding charge To the government.
“The accounts stop working at more than 4%. The market has already priced in approaching this limit.” He added.
The consequences are far-reaching Beyond Japan. As higher long-term yields threaten the base For long-term yen yield trading, In which global investors borrow at low yen rates and deploy capital in higher yielding markets abroad.
“The largest arbitrage trade in human history … was built on the premise that Japanese interest rates would remain frozen forever. That assumption died yesterday,” Pereira said.
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The analyst explained that when bond yields rise, Japanese interest rates begin to fall. Higher yields make borrowing in yen more expensive, and the currency tends to appreciate as money flows back to Japan.
This means that whoever borrowed yen immediately faces a higher repayment cost. He also noted that Wellington Management expects the yen to rise 4-8% over the next six months.
When this happens, many leveraged investments become unprofitable. Positions are forced to collapse, margin calls occur, and some $20 trillion tied up in yen-financed trades could begin to move in the opposite direction.
Pereira noted: “Correlation studies show a 0.55 correlation between the yen and the decline of the S & P 500. Emerging market currencies fall 1-3% in thirty days. US Treasury yields jump 15-40 basis points on lower Japanese demand. Emerging market bonds rely on foreign capital that is now leaving.
He also noted that the next “critical test” is the 40-year bond auction scheduled for November 20. A weak supply-to-cover ratio indicates insufficient demand for Japanese long-term debt, which increases market volatility according to Pereira,
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If the supply to coverage ratio is below 2.5 times, it confirms insufficient demand. Failed auctions create death spirals. Weak demand forces higher returns. Higher yields accelerate the collapse. More sell. The weakest request.
Bitcoin and risky assets are under pressure
An analyst also confirmed that the collapse may extend to many parts of the global market, including the cryptocurrency sector. As Japanese bond yields rise, they become more attractive compared to overseas assets.
Investors can then begin to reduce their foreign positions and move capital to Japan, That reduces support of high risk markets in the world. If this pattern continues, it could lead to a large sale of international assets, especially US Treasuries. and equity ETF shares.
entered Post “How could it affect Bitcoin? When liquidity tightens, all risk assets suffer. Gold, technology shares and of course cryptocurrencies are the first to react. Because investors start hedging, without taking risks. Next: the dollar strengthens due to capital inflow. A strong dollar always puts pressure on all non-leveraged assets. Not because it was weak, but because of liquidity weak”.
This change affects Bitcoin at a time when it is already… Under pressure because of weakness Institutional demand and weaker ETF flows. The analyst warned that if capital repatriation accelerates, Bitcoin could face another decline. In this case, the decline may be stronger than many investors expect
