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|8 min ReadJapan Bond Yields Break 1 Percent And Squeeze Global Crypto Liquidity
Tariq Al-Saidi
Senior Analyst
Published
Jan 16, 2026
Alpha Briefing: Japanese government bond yields moving above 1 percent mark a regime shift away from ultra cheap yen funding and toward a tighter global liquidity cycle. This puts pressure on carry trades that have quietly fueled US and Asian equities and crypto, while supporting gold and eventually Bitcoin as hedges against rising debt and FX stress. For traders in Brazil and the Middle East, Japan’s move is a new macro anchor that will shape FX, equities, commodities and crypto positioning for years, not weeks.
For more than a decade, markets treated Japan as the global funding basement. Borrow in yen close to zero, convert to dollars or other currencies, buy anything with a higher yield and enjoy the spread. That era is now being written into history.
Japanese government bond yields have left the negative and near zero zone. The two year yield has climbed to around 1 percent for the first time since 2008. Five year paper is now about 1.345 percent and the 30 year briefly traded near 3.395 percent, a record level. Those numbers are not just milestones on a chart. They are the price tag on the end of “free money” in the world’s third largest economy.
Between 2010 and 2023, short dated Japanese bonds mostly lived between roughly minus 0.2 and plus 0.1 percent. Capital was effectively punished for staying at home and rewarded for leaving. What made sense for Tokyo’s policymakers as a response to decades of deflation built one of the largest hidden liquidity engines in global finance.
Now that engine is starting to run slower.
From Free Yen To A Real Price Of Money
Japan’s rate story began with a long fight against deflation. After the bubble burst in the early 1990s, prices barely rose, wages were stagnant and consumers were cautious. The Bank of Japan responded with the most aggressive experiment in modern monetary policy.
Zero interest rates. Then negative rates. Then yield curve control that kept long dated yields pinned. The goal was clear. Make money so cheap that households and companies would rather invest, hire and spend than sit on cash.
The result was a yield curve that hugged zero for years. Two year government bonds offered almost nothing. Depositors faced the strange situation where leaving money in the bank could cost them. Borrowers and global investors, by contrast, could access an almost costless funding currency.
Once bond yields across the curve move to about 1 percent and above, the whole logic changes. Japan is no longer the last major economy holding rates near zero while others tighten. It has stepped out of the role of permanent outlier.
For Japanese investors, domestic bonds finally offer a visible return. For global markets, the yen is no longer guaranteed to be a weak, stable funding currency. The free lunch is over, and that forces a repricing of risk.
How The Yen Carry Trade Unwinds Across Equities And FX
The yen carry trade was simple in design and massive in scale. Borrow in yen at extremely low rates. Swap into dollars or another currency. Buy higher yielding assets such as US Treasuries, investment grade bonds, equities in the US and Asia or even Bitcoin. As long as the funding cost stayed near zero and the yen did not surge, the trade printed money.
There is no single official number for the total size, but institutional estimates commonly place it in the one to two trillion dollar range at the low end and three to five trillion at the high end when all forms of yen funded positioning are included. That makes it one of the largest invisible liquidity pipes in the system.
With Japanese yields higher, several pressures hit at once. New carry trades become less attractive. Existing trades carry more funding risk. A stronger yen can suddenly wipe out years of carry in a few violent FX sessions. Domestic bonds look more appealing to Japanese life insurers, banks and the giant pension fund, so a share of capital that previously flowed into foreign assets stays onshore.
US equities lose part of their invisible support. Asian stock markets in Korea, Taiwan, Singapore and elsewhere, which benefited from Japanese capital during the cheap yen years, face more volatile flows. When the yen strengthens, global risk appetite often steps down because leveraged trades have to be cut.
Japan’s own equity market lives with a dual effect. Higher domestic rates are a short term drag on valuations, especially for export heavy companies that suffer when the yen rises. Yet escaping permanent deflation and moving toward a more normal rate structure allows a healthier long term growth and valuation framework. That is one reason value investors such as Warren Buffett have been comfortable building large stakes in Japanese trading houses and industrial names in recent years, especially after the yen hit multi decade lows in 2022 and 2023.
Gold And Bitcoin In A Post Free Money World
Gold sits at the crossroads of three forces that Japan’s shift directly touches: the dollar, real yields and risk sentiment. The metal tends to gain when the dollar weakens, when real rates fall or when global risk perception rises.
The yen carries meaningful weight in the dollar index. When Japanese yields rise and the currency finds its footing, the index feels pressure. A softer dollar removes a key headwind for gold. At the same time, the end of ultra cheap global money exposes debt problems and fiscal stress across advanced economies, which supports demand for assets with no counterparty risk and long term purchasing power.
Even if some Japanese investors buy slightly less gold because domestic bonds yield more, global demand is dominated by central banks, ETFs and growing middle class wealth in emerging markets. The net effect of Japan’s move on gold is still tilted positive over the medium to long term.
Bitcoin reacts differently in the short run. It trades like a high beta macro asset, closely linked to liquidity conditions and to US tech. When funding currencies strengthen and carry trades are cut, BTC is often among the first assets to feel the pain. It is like a live monitor of global risk appetite.
Short term, higher Japanese yields and a firmer yen are a headwind for speculative crypto positions. Some leverage will be reduced and sharp moves can trigger liquidations. However, the deeper macro backdrop points in Bitcoin’s favor. As global debt costs rise and FX regimes become more unstable, assets that do not depend on any single government’s balance sheet gain strategic value. In the analog world that is gold. In the digital world, that is Bitcoin.
The likely path is a classic two stage pattern. First, a liquidity driven shakeout where BTC trades lower with risk assets. Then, as the new rate regime is digested and credit stress builds, a renewed bid for Bitcoin as a macro hedge and long duration digital asset.
Editor Opinion Brazil And Middle East: How To Trade A Japanese Regime Shift
For Brazil, Japan’s move matters through several channels. A stronger yen can weigh on the dollar index over time, which tends to support commodity currencies and hard asset exporters. At the same time, the moderation of global carry flows means that emerging market risk premia will not compress as easily as in past cycles. Foreign flows into Brazilian equities and local bonds may become more tactical and more sensitive to global volatility.
Brazilian crypto traders are used to navigating FX swings and inflation cycles. In this new regime, watching the yen and Japanese yields becomes as important as watching the Federal Reserve. When yen strength and rising Japanese yields coincide with stress in US credit, it is a signal that liquidity conditions for high beta assets like altcoins are worsening.
In the Gulf and wider Middle East, large pools of capital in sovereign wealth funds and family offices are steadily increasing allocations to gold and digital assets. For them, Japan’s normalization is an opportunity rather than a threat. A world that abandons artificial suppression of rates will deliver better long term entry levels, even if short term volatility rises sharply.
The strategic play in MENA is to separate noise from regime. Noise is every sharp candle caused by funding squeezes. Regime is the slow migration from a world of suppressed yields and hidden carry to one where money has a clear price and sovereign debt looks more fragile. In that world, building core positions in gold and Bitcoin on liquidity driven dips becomes more attractive.
Across Brazil and the Middle East, one lesson is the same. The headline about “Japan bond yields above 1 percent” is not just trivia from another region. It is a marker that the last big source of nearly free capital is changing. When the price of yen money resets, every market that relied on it, from New York to São Paulo to Dubai, has to adjust its risk and liquidity assumptions.
Disclaimer: This document is intended for informational and entertainment purposes only. The views expressed in this document are not, and should not be taken as, investment advice or recommendations. Recipients should do their own due diligence, taking into account their specific financial circumstances, investment objectives and risk tolerance, which are not considered here, before investing. This document is not an offer, or the solicitation of an offer, to buy or sell any of the assets mentioned.