Japanese government bonds are climbing to levels last seen nearly two decades ago. Yields have surged to their highest point since 2008, and the effects are quickly spilling across global markets. Over the weekend, the first asset class to react was crypto.

What is happening in Japan

The yield on Japan’s 10-year government bond has reached 1.86 %. The number itself is not dramatic — context is. For decades, Japan kept interest rates extremely low, often near zero. This encouraged investors to borrow cheap yen and pour money into higher-yielding, riskier assets. The strategy, known as the yen carry trade, served as a massive source of global liquidity.

That era is shifting. Yields are rising, two-year bonds have climbed above 1 % for the first time since 2008, and the yen is no longer the bargain it used to be. Investors are beginning to consider bringing money home.

When one pillar shakes, the whole world moves

Economist Shanaka Anslem Perera notes that investors deployed trillions of dollars borrowed cheaply in yen into U.S. bonds, European markets, emerging economies, and high-risk assets such as cryptocurrencies. “That anchor is now loosening,” he says.

The situation is particularly sensitive for the United States, as Japanese institutions hold more than one trillion dollars’ worth of U.S. Treasuries. At a time when Washington is issuing record levels of new debt, any retreat by Japanese buyers could pressure markets during an already fragile moment.

Crypto reacts first

The weekend sell-off in the crypto market may be the first sign that liquidity is tightening. Bitcoin and other digital assets typically thrive when cheap money is abundant — and part of that liquidity has historically come from Japan.

When investors start repatriating capital, the impact hits the riskiest assets first. DeFi analyst Wukong explains: “Crypto moves first. It sits at the far end of the risk spectrum, so even small shifts in liquidity cause oversized reactions.”

What happens next

If global bonds continue repricing and yields keep rising, markets often shift into caution mode. Investors trim risk and increase cash positions. It does not necessarily mean a long-term decline for crypto, but volatility may intensify.

For everyday investors, the takeaway is simple: even distant events — such as rising bond yields in Japan — can have a rapid and unexpected impact on a portfolio. And crypto, as the most sensitive segment of the market, is the first to show it.

Sources:

https://www.marketwatch.com/investing/bond/tmbmkjp-10y/charts?countryCode=BX

https://x.com/shanaka86/status/1995344435069259851

https://x.com/defiwukong/status/1995351592053133348

https://cointelegraph.com/news/japan-10-year-government-bond-yield-jumps-highest-level-since-2008