Concerns are rising among investors as the yield on 30-year Japanese government bonds climbs to its highest point in nearly two decades, unsettling markets at a time when other financial assets are beginning to stabilize.
After the tariff-induced panic last week, which impacted both traditional risk assets and Bitcoin (BTC), the market was hoping for some calm. However, the sharp rise in Japanese bond yields has now emerged as a new source of worry.
The yield on Japan’s 30-year government bonds hit 2.88% on Tuesday, marking the highest level since 2004. This represents a nearly 60 basis point increase in just one week, as shown by data from TradingView. Additionally, the yield difference between the 30-year and five-year bonds—the premium investors demand for holding longer-term bonds—has widened to its greatest level in nearly 20 years. The 10-year yield has also seen a modest bounce of about 30 basis points to 1.37%, although it remains far below the recent high of 1.59%.
These developments in ultra-long Japanese bonds are raising alarms. Japan has long been a major international creditor and holds the largest share of U.S. Treasury bonds. As of January, Japan owned $1.079 trillion in Treasuries. For nearly two decades, the country’s low bond yields have provided stability, supporting risk-taking across global financial markets.
The ongoing rise in long-term Japanese bond yields could lead Japanese investors to repatriate funds, possibly reducing their holdings in international bonds and riskier yen-funded carry trades. This could cause turbulence in the U.S. Treasury market and put upward pressure on the yen, which in turn could fuel risk aversion globally.
Garry Evans, Chief Strategist for Global Asset Allocation at BCA Research, commented on CNBC that Japan’s significant international investment positions are a key factor in these developments. “The Japanese have the largest international investment position in the world. If that money starts to flow back to Japan, it could have a negative impact on global markets.”
This shift could also pressure Bitcoin, similar to what happened last August when the first round of the yen carry unwind occurred. Bitcoin, seen by some as a store of value and a hedge against risk, had shown relative resilience during the tariff escalation last week. Although Bitcoin fell less sharply than the Nasdaq and the S&P 500, it has been on a downward trend since early February, likely reflecting fears of an ongoing trade war and its potential impact on financial markets.
As global financial dynamics evolve, investors will need to stay vigilant to market shifts that could affect their portfolios.
