Japan's Soaring Yields Mark End of Three-Decade Trend, Rattling International Markets

Japanese Bond Yields Hit 17-Year High, Shaking Global Markets

On December 1, 2025, Japan's 10-year government bond yield soared to 1.84%, reaching its highest point since April 2008. This surge sparked a significant sell-off in both global risk assets and cryptocurrency markets. The dramatic move was fueled by the Bank of Japan's gradual departure from its longstanding ultra-loose monetary stance, alongside a substantial ¥21.3 trillion fiscal stimulus initiative.

This shift has upended the traditional yen carry trade—a strategy where investors borrowed yen at low interest rates to invest in higher-yielding assets abroad. As this trade unwinds, global liquidity has tightened, with cryptocurrencies experiencing the most pronounced impact.

Data from Coinglass reveals that over $640 million in crypto positions were liquidated within a single day. Major cryptocurrencies like Bitcoin and Ethereum both dropped over 5%, mirroring a similar decline in the overall digital asset market capitalization.

Structural Changes in Japan’s Financial Landscape

For three decades, Japan's near-zero interest rates made the yen a preferred funding currency for global investors, supporting investments in U.S. Treasuries, European bonds, and volatile assets such as cryptocurrencies. However, with inflation consistently above 2% and markets anticipating a rate hike at the Bank of Japan’s December meeting, capital is beginning to flow back into Japan.

Japanese institutions currently hold $1.1 trillion in U.S. Treasuries, but rising domestic yields are making foreign investments less appealing. Analyst Shanaka Anslem Perera cautioned that the entire global financial system, shaped since 2008, will need to adjust as Japan’s role as a key source of liquidity diminishes.

Ripple Effects on U.S. and Global Markets

This development comes at a challenging time for U.S. markets. The Federal Reserve has just wrapped up its quantitative tightening efforts, while the U.S. Treasury is issuing record amounts of debt to cover a $1.8 trillion deficit. Meanwhile, China has reduced its U.S. bond purchases. With Japan now also pulling back, the cost of global funding is rising, putting pressure on leveraged positions across various asset classes. Cryptocurrencies, known for their high volatility, are often the first to react to such liquidity changes.

DeFi analyst "Wukong" observed that crypto assets, being among the riskiest, are especially sensitive to even minor shifts in liquidity. The recent wave of liquidations highlights how quickly leveraged traders can be caught off guard by sudden moves in bond yields.

Broader Market Implications

The consequences of Japan’s policy shift extend well beyond the crypto sector. A global repricing of bonds could further restrict liquidity, strengthen the yen, and force the unwinding of carry trades across stocks, commodities, and emerging markets. The Bank of Japan’s ongoing normalization, combined with fiscal stimulus, is expected to keep long-term yields elevated.

Looking ahead, the Federal Reserve’s response—potentially involving rate cuts or renewed asset purchases—remains uncertain and could help stabilize risk assets in 2026. Nevertheless, the era of abundant, low-cost leverage fueled by Japan’s easy monetary policy appears to be drawing to a close, signaling a major turning point for financial markets worldwide.