Are Bitcoin and cryptocurrencies at risk?

Japanese government bond yields have climbed to levels not seen in decades after the Bank of Japan raised interest rates last week, adding another source of pressure for cryptocurrencies already dealing with rising US Treasury yields and renewed Federal Reserve rate hike expectations.

Reuters reported on Sept. 24 that Japan’s 10 year government bond yield rose 10 basis points to 3.075%, its highest level since August 1996, while the five year yield gained 10 basis points to a record 2.375%.

The move came during Japan’s first trading session since the BOJ raised its policy rate from 1% to 1.25% on Friday. Japanese markets had remained closed through Wednesday because of public holidays.

Selling spread across the yield curve, with the 20 year JGB yield climbing 8 basis points to 3.9% and the 30 year yield rising 6 basis points to 4.13%.

BOJ Governor Kazuo Ueda signaled that more rate hikes could follow, while concerns over domestic inflation have kept pressure on bonds. The yen weakened after the decision, prompting Japanese authorities to conduct rate checks in the currency market several hours later.

“Interest rates are being reviewed globally, and Japan’s interest rates are particularly low,” Masayuki Koguchi, executive chief fund manager at Mitsubishi UFJ Asset Management, told Reuters.

“So when the market finds a negative market cue, the selloff accelerates,” he added.

Japan bond yields could put yen funded trades under pressure

Rising Japanese rates do not provide a direct signal for Bitcoin or other cryptocurrencies, but traders have been watching Japan because of its role in funding global carry trades.

Investors have historically been able to borrow yen at low rates and move that money into assets offering higher returns. As Japanese borrowing costs rise, some of those positions can become less attractive.

Crypto.news previously reported that analysts were watching a possible squeeze on yen funded trades if the central bank continued raising rates.

Bitget Wallet chief marketing officer Jamie Elkaleh said at the time that the Fed remained the dominant central bank signal for Bitcoin because it sets the dollar liquidity and real yield backdrop, while the BOJ represented a risk that markets could be underestimating.

So far, however, Japan’s latest move has not produced clear signs of a disorderly carry trade unwind.

The yen weakened after the BOJ decision instead of strengthening. A classic carry trade reversal becomes more problematic when the Japanese currency rises because investors who borrowed yen can face higher costs when closing or servicing those positions.

The situation therefore differs from the yen carry trade episode of August 2024, when leveraged positions across global markets were reduced as Japanese monetary policy and currency moves forced investors to reassess cheap yen funding.

Higher domestic yields could still affect where Japanese institutions put their money.

Earlier in September, Japan’s 10 year bond yield briefly crossed 3%, prompting BlackRock to examine whether Japanese institutions could begin keeping more capital at home.

Yen hedged 10 year US Treasuries were yielding roughly 2% for Japanese investors at the time, compared with around 3% on Japanese government debt.

BlackRock used a hypothetical 5% reallocation of Japan’s roughly $1.1 trillion in US Treasury holdings to show that around $55 billion could move toward Japanese assets. The calculation was presented as a scenario, not a forecast of actual selling.

Fitch Ratings similarly said higher domestic yields could encourage Japanese institutions to retain more capital at home, though it did not predict a large liquidation of existing overseas bond holdings.

US rates remain the more immediate pressure on cryptocurrencies

Japan’s bond selloff comes as Bitcoin and the cryptocurrency market are already dealing with another rise in US borrowing costs.

US Treasury yields jumped Wednesday after stronger than expected business activity revived inflation concerns.

S&P Global’s flash US Composite PMI Output Index rose to 58.4 in September from 56, reaching its highest level since July 2021.

Fed funds futures subsequently priced a 66% probability of another rate hike in October, up from 53% earlier Wednesday, according to Reuters.

Pressure on Treasuries grew after a $70 billion auction of five year notes received weak demand. The benchmark 10 year Treasury yield rose nearly 14 basis points to 5.106%, its highest level since 2007 and its biggest one day move since April 2025.

Two year yields climbed more than 11 basis points to 4.891% after briefly touching 4.947%.

Bitcoin has already been feeling the pressure from bond yields during September as investors reassessed inflation, oil prices and the possibility of further Fed tightening.

The dollar reached its highest level in nearly two months on Wednesday as expectations for another Fed rate hike grew, according to Reuters.

Bitcoin has remained under pressure even when crypto specific demand provided some support. On Sept. 1, BTC traded around $77,500 as rate concerns weighed on the market despite positive spot Bitcoin ETF flows.

What could Japan’s bond selloff mean for Bitcoin?

The immediate risk from Japan depends largely on whether rising rates begin to affect yen funded positions or encourage more Japanese capital to remain in domestic markets.

Neither outcome has developed into a major crypto market event so far.

The yen’s weakness following the BOJ decision reduces the immediate case for a repeat of the rapid carry trade unwind seen in 2024. There is no clear evidence that Japanese investors are selling overseas assets on a scale that is directly affecting cryptocurrencies.

Institutional allocations depend on currency hedging costs, liquidity requirements, duration targets and regulatory requirements, making the effect of higher JGB yields difficult to isolate.

The US remains the more visible source of pressure for crypto markets, with Treasury yields above 5%, the dollar near a two month high and traders raising expectations for another Fed hike.

Japan adds a separate risk for traders to watch because borrowing costs are moving higher from historically low levels while domestic bond yields become more competitive with overseas assets.

Katsutoshi Inadome, senior strategist at Sumitomo Mitsui Trust Asset Management, told Reuters that local reports involving Economic Minister Minoru Kiuchi and reflationist economists had raised concerns that the BOJ could remain behind the curve in dealing with higher prices.

Prime Minister Sanae Takaichi’s first economic blueprint, released in July with an emphasis on economic growth, had previously unsettled Japanese bond markets and pushed yields higher. Selling in super long bonds eased earlier this month as traders began pricing a faster pace of BOJ rate hikes.