Japan Yields Hit 27-Year Highs; Bitcoin Stumbles as Carry Trade Unwinds
Japanese 10-year yields hit 2.34%, the highest since 1999, triggering a yen carry trade unwind that sent Bitcoin sliding to $90,800.
The “Widowmaker” Trade Returns to Haunt Risk Assets
Japan’s bond market is cracking. The 10-year Japanese Government Bond (JGB) yield surged to 2.34% today, its highest level since 1999, while the 30-year yield pierced 3.88%. The catalyst? Prime Minister Sanae Takaichi’s surprise call for a February 8 snap election and her proposal for aggressive tax cuts, which shattered investor confidence in Japan’s fiscal discipline.
The shockwaves were immediate. Bitcoin failed to hold support, sliding 2.6% to $90,886 as global liquidity conditions tightened. The mechanism is classic: rising JGB yields force a repatriation of capital, unwinding the massive yen carry trade that has quietly underpinned global risk assets for decades.
Liquidity Shock
For years, investors borrowed cheap yen to buy high-yielding assets like U.S. tech stocks and crypto. That era is ending. As Japanese yields climb, the cost of maintaining those positions spikes, forcing liquidation. The yen strengthened to 157.94 against the dollar, putting further pressure on dollar-denominated assets.
“Japan’s bond market is doing exactly what broken markets do: charging rent where they used to offer free accommodation,” noted analysts tracking the crisis. “Long-dated yields are rising because investors are questioning whether the balance sheet math still adds up.”
Bitwise: The U.S. Is Next
The contagion isn’t limited to Tokyo. Asset manager Bitwise issued a stark warning, noting that the fiscal irresponsibility driving Japan’s yield spike is mirrored in Washington. “The U.S. fiscal path is no safer,” the firm stated, suggesting that the bond vigilance punishing Japan could turn its gaze to U.S. Treasuries next.
Market Outlook
All eyes now turn to the Bank of Japan’s policy meeting later this week. With inflation running at 3% and the yen volatile, Governor Kazuo Ueda faces an impossible choice: hike rates to defend the currency and risk crashing the bond market, or hold steady and let inflation run hot. Until the JGB market stabilizes, Bitcoin and other risk assets remain in the liquidity crosshairs.
