Japan's long-term government bond yields have recently hit a record high, and market concerns about capital repatriation and the unwinding of carry trades have rapidly intensified. If this trend continues, it could have a significant impact on global capital flows, market stability and even US asset prices. Does this volatility in the Japanese bond market agree with the views of Arthur Hayes, who has been advocating Bitcoin all day long?
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ToggleLong-term bond yields hit a record high, and the risk of capital repatriation increased
According to Reuters, demand for Japan's 40-year government bonds was noticeably weak, with the auction results being the worst since November last year. The bond yield hit an all-time high of 3.689% last week and is still as high as 3.318%, up nearly 70 basis points from the beginning of the year.
The yields on 30-year and 20-year Japanese government bonds also rose by more than 60 and 50 basis points respectively, marking a rare surge in many years. This phenomenon has caused market concerns that Japanese capital may withdraw from overseas, especially US assets.
ANZ analysts pointed out that if yields continue to rise, it may trigger a "trigger point" that will cause Japanese investors to suddenly withdraw large amounts of overseas funds.
Rising Japanese bond yields could cause global market shocks
A senior strategist at Societe Generale warned that if Japanese government bond (JGB) yields continue to rise, it could trigger a "global financial market Armageddon" scenario. He said higher yields would push up the yen and dampen Japanese investors’ appetite for overseas assets, particularly U.S. technology stocks, which have attracted a lot of Japanese investment in the past.
Quantum Strategy strategists further pointed out that Japan is the world's second largest external creditor, with net external assets reaching 533 trillion yen (about 3.7 trillion US dollars) in 2024, which makes its market changes more significant in the global financial environment.
Carry trade may reverse, cheap yen story may come to an end
The carry trade has long relied on Japan's low interest rate policy, which involves borrowing cheap yen funds and then investing them in high-yielding markets such as U.S. assets. However, as Japanese yields rise, these carry positions are coming under intense pressure.
Eastspring Investments bond investment manager said that Japanese life insurers have basically completed their long-term bond allocation under policy pressure last year, and coupled with the Bank of Japan's reduction in bond purchases, the supply and demand imbalance makes it easier for yields to soar.
He described that once the interest rate is high enough to attract Japanese capital to flow back, it will cause a shock to US financial assets.
Signs have already appeared in August, and this round of withdrawal may be more intense
Last August, the Bank of Japan's interest rate hike led to a sharp unwinding of carry trades, causing sharp market fluctuations. Michael Gayed, investment manager at Tidal Financial Group, pointed out that many people think that was just an isolated incident, but if Japanese bond yields continue to rise and the United States simultaneously lowers yields and devalues the dollar, then carry trades will face a greater impact.
Natixis Asia Pacific chief economist warned that if the yen continues to appreciate, it will further impact Japan's export-oriented economy. The yen has appreciated by more than 8% since the beginning of the year.
The current round of arbitrage may be unwound slowly, and confidence in the US dollar is gradually declining
However, some experts believe that the process of unwinding this round of arbitrage transactions will be milder than last year. Amundi's head of developed market research pointed out that short-term interest rate differentials have narrowed to 320 basis points from 450 basis points at the beginning of the year. The narrowing arbitrage space, coupled with increased exchange rate volatility, has made investors more cautious about establishing new short positions in the yen.
Professor at EDHEC Business School believes that this trend is more like a "gradual erosion of confidence" rather than a one-time market crash.
Is it unlikely that Japan will completely withdraw from US debt? Experts differ
Although market concerns about the return of Japanese capital have increased, senior bond strategists at State Street Global Advisors believe that Japan's investment in U.S. Treasuries has structural factors and is supported by the U.S.-Japan strategic alliance, economic and geopolitical cooperation, so the possibility of large-scale withdrawal is limited.
In addition, State Street data shows that Japanese investors' holdings of U.S. assets are mainly stocks, with U.S. bonds accounting for a relatively low proportion. Apollo's chief economist pointed out that the market value of stocks held by foreign investors in the United States is as high as 18.5 trillion US dollars, far higher than the 7.2 trillion US dollars of US Treasury bonds.
This is a very good question because Arthur Hayes' views on the Japanese market, global monetary policy and crypto assets are often forward-looking and quite controversial. Based on his main points, I can analyze whether the current turmoil in the Japanese bond market is consistent with his expectations:
What did Arthur Hayes stand for?
Arthur Hayes, co-founder of BitMEX, has repeatedly emphasized several core points in blogs and interviews in recent years:
The long-term depreciation of the Japanese yen and the dilemma of monetary policy
Hayes has repeatedly pointed out that the Bank of Japan is willing to sacrifice the stability of the yen in order to maintain extremely low interest rates (yield curve control policy, YCC). He believes that this will lead to capital flight and currency collapse, forcing Japan to choose "printing money" and inflation.The currency war between the Japanese yen and the US dollar will affect global liquidity . He believes that the global monetary system is facing the "three-body problem" (that is, the policies of the United States, Japan and the European Central Bank are difficult to coordinate), among which Japan is the "leaky valve" of global liquidity. Once it changes direction, it will trigger a chain reaction.
Optimistic about cryptocurrencies and gold as safe-haven tools <br>In his view, when the central bank's credit and currency lose trust, decentralized assets (such as Bitcoin) will become the first choice for capital flight.
Does this volatility in the Japanese bond market agree with Hayes’s view?
Consistent areas:
Capital flows back to Japan, undermining carry trades :
Hayes has long predicted that the carry trade will collapse after Japan's policy shift. This is exactly what we are seeing now - as Japanese bond yields rise, investors may withdraw from overseas high-risk assets and return to domestic markets.The impact of yen appreciation on global capital flows :
He once pointed out that when the yen appreciates due to capital inflows, global markets (especially US stocks and risky assets) will suffer. This coincides with the view expressed by SocGen strategist Edwards in this article.Policy mismatch triggers liquidity crisis :
The "global financial triad imbalance" that Hayes talked about began to emerge: the United States tried to lower yields, while Japan was forced to raise interest rates due to internal pressure. The two were pulling each other, affecting overall market liquidity.
Inconsistencies:
Will Japan continue to print money?
Hayes has always believed that Japan will eventually implement unlimited quantitative easing and even trigger an inflation storm. But the current situation is that Japan is reducing its bond purchases and allowing yields to rise, which is still some distance from his "final script."Will the yen continue to depreciate?
He often predicts that the yen will depreciate to extreme levels in the long term, but it has currently appreciated by more than 8% due to rising yields. This is contrary to his prediction in the short term, but if the Japanese economy cannot withstand high interest rates, it may eventually return to the direction he predicted.
Current developments are broadly consistent with Arthur Hayes's macro-forecast, but have not yet fully realized his final script. He has long warned that the Japanese bond market will become one of the most critical risk factors in the global market, and now is the time when this risk is beginning to emerge.
Risk Warning
Cryptocurrency investments carry a high degree of risk, their prices may fluctuate dramatically, and you may lose all your investment. Please assess the risks carefully.
Bitcoin 2025 was grandly launched in Las Vegas on May 27. Cynthia Lummis, a crypto-friendly U.S. congressman, publicly stated at the conference that President Trump strongly supports the Bitcoin Act and plans to buy 100 BTC within 5 years. It was also revealed that the White House team is currently pushing for major bills including stablecoins, digital asset market architecture and Bitcoin strategic reserves. These bills are expected to be introduced in the coming weeks and will become a focus of global encryption policy observation.
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ToggleKey Summary
US crypto-friendly congressman Lummis said Trump supports the BITCOIN Act and plans to buy 1 million BTC in 5 years
The funds for the BITCOIN Act will be allocated from the existing budgets of the Federal Reserve (Fed) and the Treasury Department, and will not increase the burden on taxpayers.
The stablecoin bill "GENIUS Act" has passed the key procedural vote in the Senate and will be put to a vote in the near future.
David Sacks, the White House AI encryption czar, said: The GENIUS Act will definitely pass and the two parties have reached an agreement.
Trump supports Bitcoin bill and plans to buy 1 million BTC in 5 years
At the Bitcoin 2025 conference held in Las Vegas, USA on May 27, crypto-friendly Congresswoman Cynthia Lummis announced that she would once again promote the Bitcoin Act, and emphasized that US President Trump would fully support the bill.
At the same time, she also revealed the contents of the Bitcoin bill, of which there are two key points:
- The US government expects to purchase nearly 1 million BTC in the next five years
- Lummis assured that the spending would come from the existing budgets of the Federal Reserve and the Treasury Department and would not increase the burden on taxpayers.
White House professional team goes online, stablecoin bill ready for vote
Lummis also revealed that the White House actually has a professional team drafting three major digital asset bills, which are:
Stablecoin Legislation
Digital Asset Market Structure Bill
Bitcoin Strategic Reserve Act
She announced that the three bills will be introduced in this order. The fastest-progressing stablecoin bill at the moment is the GENIUS Act, which has been sent to the Senate Banking Committee.
The GENIUS Act and the BITCOIN Act strengthen the United States’ leadership in crypto assets
The goal of the GENIUS Act is to establish a set of compliant, redeemable "payment stablecoin" standards designed specifically for everyday payments and corporate purposes, and to clearly distinguish them from high-risk decentralized or algorithmic stablecoins.
David Sacks, the White House AI encryption czar, also stated in an interview earlier: "The GENIUS Act will definitely pass and has bipartisan support." He also emphasized that as long as clear regulatory direction is provided, trillions of dollars in demand for U.S. debt can be quickly created.
According to CoinGecko data, the two mainstream stablecoins USDT and USDC currently on the market have a total market value of US$214.1 billion, and are pegged to the US dollar and US bonds, further strengthening the US dollar's position as the "global settlement currency."
In summary, the United States has recently released a series of policy trends, which is to strengthen the strategic advantage of the US dollar in the global market through Bitcoin strategic reserves and compliant stablecoin legislation.
Risk Warning
Cryptocurrency investments carry a high degree of risk, their prices may fluctuate dramatically, and you may lose all your investment. Please assess the risks carefully.
