From Bonds to Bitcoin: Japan’s Financial Shift Explained

From Bonds to Bitcoin- Liquidity Crunch Deepens in Japan’s Bond Market

From Bonds to Bitcoin– Japan is grappling with its worst bond market liquidity crisis since the 2008 global financial collapse. Long-term yields have surged, with the 30-year yield jumping to 3.20% — a 100 basis point increase — while the 40-year bond has shed over $500 billion in value. Once deemed stable, these bonds now signal distress.

According to analyst Financelot, “Liquidity conditions are beginning to resemble those seen during the Lehman Brothers collapse,” raising fears of broader financial instability.

BOJ Policy Shift Triggers Economic Fallout

The root of the turmoil lies in the Bank of Japan’s recent monetary pivot. Years of aggressive bond buying have given way to a sharp pullback, flooding the market and pushing yields higher. Despite reducing its purchases, the BOJ still holds $4.1 trillion in debt — more than half of all outstanding Japanese government bonds.

Japan’s national debt has now reached $7.8 trillion, pushing its debt-to-GDP ratio to a staggering 260%, more than double that of the U.S. Meanwhile, Q1 2025 GDP shrank by 0.7%, and inflation rose to 3.6%, stoking fears of a stagflationary environment.

Crypto Industry Remains Resilient

Despite macroeconomic pressure, Japan’s crypto market continues to grow. As of April 30, 32 registered crypto exchanges were active, with February trading volumes exceeding JPY1.9 trillion in spot markets and JPY1.5 trillion in margin trades.

The ruling LDP’s Web3 team is pushing for crypto-assets to be recognized under financial law, reinforcing regulatory clarity. In this climate, Bitcoin [BTC] is increasingly seen as a hedge, as the yen’s traditional carry trade appeal erodes.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Cryptocurrencies and stocks, particularly in micro-cap companies, are subject to significant volatility and risk. Please conduct thorough research before making any investment decisions.