Japan’s Bond Yield Surge: The Global Financial Shift Unfolds

By: crypto insight|2025/12/01 18:30:08

Key Takeaways

Japan’s bond yield surpasses 1% for the first time since 2008, signaling the end of its long-standing zero to negative interest rate era.
The shift affects global financial markets, especially impacting foreign investments and carry trade practices.
Market dynamics show potential pressures on global securities like U.S. stocks and cryptocurrencies.
Long-term changes in global liquidity patterns are expected as Japan’s investors recalibrate their portfolios.

WEEX Crypto News, 2025-12-01 10:25:16

Introduction to Japan’s Financial Transition

Japan’s financial landscape is undergoing a historic transformation. After an extended period of extremely low or even negative interest rates, the yield on Japan’s two-year government bonds has surpassed 1% for the first time since 2008. This shift marks a significant departure from the monetary policies Japan has adhered to over the past decade. The implications of this financial realignment are profound, affecting not only Japan but also the entire global economic framework.

Japan’s economic strategy, post-1990 economic bubble, was characterized by low inflation, stagnant wages, and weak consumer demand, leading to persistent deflationary challenges. The Bank of Japan (BOJ) responded by adopting one of the world’s most aggressive monetary policies, maintaining low to negative interest rates. The goal was to spur investment and consumption by keeping borrowing costs close to zero. This strategy effectively provided “free money,” encouraging investment overseas and supporting risky asset classes globally.

Japan’s Interest Rate Shift and Global Monetary Implications

The recent increase in Japan’s bond yield signifies a major pivot in its monetary policy approach and has numerous implications worldwide. The end of the ultra-loose monetary period means Japan is now moving away from being the only major economy maintaining near-zero interest rates. This strategic shift is likely to influence both domestic and international investment landscapes.

Impact on Japanese Investments Abroad

Historically, Japan has been one of the world’s largest overseas investors, driven by low domestic yield environments which pushed institutions like the Government Pension Investment Fund (GPIF) and insurance companies to seek higher returns abroad. With rising domestic rates, the motivation for Japanese investors to seek international returns diminishes, potentially leading to a reallocation of assets back into Japan.

Global Carry Trade: A Systemic Repercussion

The increase in interest rates holds particular implications for the carry trade, a widely used financial strategy involving borrowing in a currency with low interest to purchase assets in a higher-yielding currency. For decades, traders took advantage of Japan’s low borrowing costs to fund investments in higher-yielding markets like the U.S., East Asia, and other emerging economies. The sudden evaporation of these favorable conditions could dampen the liquidity that has fueled several financial markets, from equities to cryptocurrencies.

Effects on U.S. and Asian Equity Markets

The U.S. stock market, having experienced a buoyant bull run over the last decade partly due to these cheap investment inflows, may face new headwinds. The rise in Japanese interest rates may discourage the flow of capital into U.S. equities, especially at a time when valuations remain high, and the AI sector faces growing skepticism.

Similarly, Asian markets — particularly those in South Korea, Taiwan, and Singapore — could experience increased volatility. These markets historically benefited from the Japanese yen carry trades, and a retreat of this cheap financing source could invoke short-term disruptions.

For Japan’s domestic market, despite initial pressures due to rising costs for companies reliant on export competitiveness, the normalization of interest rates holds the promise of stabilizing deflation. This reshaping could invite foreign interest into Japanese equities, particularly those engaged in value investing. An example of this sentiment can be seen in Warren Buffett’s strategic investments in Japanese trading companies since 2020, signaling confidence in Japan’s long-term growth potential during periods of market recalibration.

The Role of Cryptocurrencies and Traditional Safe Havens

The appreciation of the yen also has ramifications for traditional safe havens like gold and modern alternatives like Bitcoin.

Effects on Gold

Gold’s pricing dynamics are historically simple: a weaker U.S. dollar means higher gold prices, along with drops in real interest rates and rising global risks. The yen’s appreciation directly challenges the U.S. dollar strength index (DXY), where the yen plays a significant part. With fading dollar strength, gold could see price elevations, buoyed by a return to higher domestic asset allocations within Japanese finance.

Bitcoin: The Risk Asset’s Oscillation

Unlike gold, Bitcoin is categorized among the most liquid risky assets, usually exhibiting behaviors highly synchronized with broader stock market indices such as the Nasdaq. Japanese interest rate hikes potentially curtail the easy flow of capital around the globe, placing pressure on Bitcoin prices. A rising yen could signal global withdrawal from these high-volatility investments. However, Bitcoin might gain a reassessed valuation due to its perceived absence of sovereign risk, akin to gold’s standing in volatile macroeconomic environments.

Long-term Impact and Strategic Considerations

The gradual cessation of Japan-driven low-yield funding underscores an imminent shift in global liquidity structure. This metamorphosis signals a new era for financial markets, one that demands adaptability to changing monetary flows. As global markets innately search for equilibrium, identifying assets that best withstand these new conditions may become the ultimate investor challenge.

The overarching market responds to this shifting foundation by seeking profitability amidst changing risks and rewards. This narrative implies that the traditional reliance on Japan’s financial policies has ended, and an era defined by different fiscal responsibilities and yield prospects awaits.

Conclusion: Navigating the New Financial Era

The rise in Japan’s bond yield is a harbinger of broader global economic reconfigurations. Investors, policymakers, and market analysts must realign their strategies to brace for the new reality. As markets gradually adapt and reflect these changes, only time will tell which economies and industries adapt successfully to the emerging financial era.

Adapting swiftly to new environments, understanding obscured finance chain impacts, and preparing for decreased international liquidity will define success and stability in global markets. With a new reality before us, the challenge lies in agility and insight as we navigate this unprecedented monetary regime shift.

In conclusion, as algorithmic models reassess with fading Japanese carry trades, all global markets are poised to confront this formidable sea change. Future financial stability hinges upon the ability to interpret these macroeconomic signals effectively and exploit new opportunities in an uncertain yet dynamic market landscape.

FAQs

What caused Japan’s bond yields to rise above 1%?

Japan’s bond yields crossed 1% primarily due to a shift away from its traditional monetary policies. The Bank of Japan is retreating from a prolonged period of extremely low or negative interest rates, responding to broader economic pressures to normalize financial conditions.

How does Japan’s interest rate change affect global investments?

Rising Japanese interest rates cause a reallocation of Japanese funds previously invested abroad due to low domestic returns. This change impacts foreign markets that relied on Japanese investments, leading to potential liquidity adjustments.

What is a carry trade, and why is it significant?

A carry trade involves borrowing at low-interest rates to invest in higher-yielding assets elsewhere. It is significant because it enhances global liquidity flow and affects risk asset valuations. As Japanese rates rise, the lucrative yen carry trade diminishes.

How could changes in Japan’s monetary policy influence the U.S. stock market?

The policy shift may reduce the flow of Japanese capital into U.S. markets. Given existing high valuations and questioned growth narratives, reduced liquidity could exacerbate potential corrections or slow growth in U.S. equities.

How does the yen’s strength influence cryptocurrency markets like Bitcoin?

As the yen strengthens with rising rates, it could prompt a global shift away from high-risk assets like cryptocurrencies. However, Bitcoin may eventually benefit from heightened global financial risk as it is reassessed as a non-sovereign risk asset, similar to gold.

Foreword: Today, the People's Bank of China's website published the "Notice of the People's Bank of China, National Development and Reform Commission, Ministry of Industry and Information Technology, Ministry of Public Security, State Administration for Market Regulation, China Banking and Insurance Regulatory Commission, China Securities Regulatory Commission, State Administration of Foreign Exchange on Further Preventing and Dealing with Risks Related to Virtual Currency and Others (Yinfa [2026] No. 42)", the latest regulatory requirements from the eight departments including the central bank, which are basically consistent with the regulatory requirements of recent years. The main focus of the regulation is on speculative activities such as virtual currency trading, exchanges, ICOs, overseas platform services, and this time, regulatory oversight of RWA has been added, explicitly prohibiting RWA tokenization, stablecoins (especially those pegged to the RMB). The following is the full text:

To the people's governments of all provinces, autonomous regions, and municipalities directly under the Central Government, the Xinjiang Production and Construction Corps:

Recently, there have been speculative activities related to virtual currency and Real-World Assets (RWA) tokenization, disrupting the economic and financial order and jeopardizing the property security of the people. In order to further prevent and address the risks related to virtual currency and Real-World Assets tokenization, effectively safeguard national security and social stability, in accordance with the "Law of the People's Republic of China on the People's Bank of China," "Law of the People's Republic of China on Commercial Banks," "Securities Law of the People's Republic of China," "Law of the People's Republic of China on Securities Investment Funds," "Law of the People's Republic of China on Futures and Derivatives," "Cybersecurity Law of the People's Republic of China," "Regulations of the People's Republic of China on the Administration of Renminbi," "Regulations on Prevention and Disposal of Illegal Fundraising," "Regulations of the People's Republic of China on Foreign Exchange Administration," "Telecommunications Regulations of the People's Republic of China," and other provisions, after reaching consensus with the Cyberspace Administration of China, the Supreme People's Court, and the Supreme People's Procuratorate, and with the approval of the State Council, the relevant matters are notified as follows:

I. Clarify the essential attributes of virtual currency, Real-World Assets tokenization, and related business activities

(I) Virtual currency does not possess the legal status equivalent to fiat currency. Virtual currencies such as Bitcoin, Ether, Tether, etc., have the main characteristics of being issued by non-monetary authorities, using encryption technology and distributed ledger or similar technology, existing in digital form, etc. They do not have legal tender status, should not and cannot be circulated and used as currency in the market.

The business activities related to virtual currency are classified as illegal financial activities. The exchange of fiat currency and virtual currency within the territory, exchange of virtual currencies, acting as a central counterparty in buying and selling virtual currencies, providing information intermediary and pricing services for virtual currency transactions, token issuance financing, and trading of virtual currency-related financial products, etc., fall under illegal financial activities, such as suspected illegal issuance of token vouchers, unauthorized public issuance of securities, illegal operation of securities and futures business, illegal fundraising, etc., are strictly prohibited across the board and resolutely banned in accordance with the law. Overseas entities and individuals are not allowed to provide virtual currency-related services to domestic entities in any form.

A stablecoin pegged to a fiat currency indirectly fulfills some functions of the fiat currency in circulation. Without the consent of relevant authorities in accordance with the law and regulations, any domestic or foreign entity or individual is not allowed to issue a RMB-pegged stablecoin overseas.

（II）Tokenization of Real-World Assets refers to the use of encryption technology and distributed ledger or similar technologies to transform ownership rights, income rights, etc., of assets into tokens (tokens) or other interests or bond certificates with token (token) characteristics, and carry out issuance and trading activities.

Engaging in the tokenization of real-world assets domestically, as well as providing related intermediary, information technology services, etc., which are suspected of illegal issuance of token vouchers, unauthorized public offering of securities, illegal operation of securities and futures business, illegal fundraising, and other illegal financial activities, shall be prohibited; except for relevant business activities carried out with the approval of the competent authorities in accordance with the law and regulations and relying on specific financial infrastructures. Overseas entities and individuals are not allowed to illegally provide services related to the tokenization of real-world assets to domestic entities in any form.

II. Sound Work Mechanism

(III) Inter-agency Coordination. The People's Bank of China, together with the National Development and Reform Commission, the Ministry of Industry and Information Technology, the Ministry of Public Security, the State Administration for Market Regulation, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, the State Administration of Foreign Exchange, and other departments, will improve the work mechanism, strengthen coordination with the Cyberspace Administration of China, the Supreme People's Court, and the Supreme People's Procuratorate, coordinate efforts, and overall guide regions to carry out risk prevention and disposal of virtual currency-related illegal financial activities.

The China Securities Regulatory Commission, together with the National Development and Reform Commission, the Ministry of Industry and Information Technology, the Ministry of Public Security, the People's Bank of China, the State Administration for Market Regulation, the China Banking and Insurance Regulatory Commission, the State Administration of Foreign Exchange, and other departments, will improve the work mechanism, strengthen coordination with the Cyberspace Administration of China, the Supreme People's Court, and the Supreme People's Procuratorate, coordinate efforts, and overall guide regions to carry out risk prevention and disposal of illegal financial activities related to the tokenization of real-world assets.

(IV) Strengthening Local Implementation. The people's governments at the provincial level are overall responsible for the prevention and disposal of risks related to virtual currencies and the tokenization of real-world assets in their respective administrative regions. The specific leading department is the local financial regulatory department, with participation from branches and dispatched institutions of the State Council's financial regulatory department, telecommunications regulators, public security, market supervision, and other departments, in coordination with cyberspace departments, courts, and procuratorates, to improve the normalization of the work mechanism, effectively connect with the relevant work mechanisms of central departments, form a cooperative and coordinated working pattern between central and local governments, effectively prevent and properly handle risks related to virtual currencies and the tokenization of real-world assets, and maintain economic and financial order and social stability.

III. Strengthened Risk Monitoring, Prevention, and Disposal

(5) Enhanced Risk Monitoring. The People's Bank of China, China Securities Regulatory Commission, National Development and Reform Commission, Ministry of Industry and Information Technology, Ministry of Public Security, State Administration of Foreign Exchange, Cyberspace Administration of China, and other departments continue to improve monitoring techniques and system support, enhance cross-departmental data analysis and sharing, establish sound information sharing and cross-validation mechanisms, promptly grasp the risk situation of activities related to virtual currency and real-world asset tokenization. Local governments at all levels give full play to the role of local monitoring and early warning mechanisms. Local financial regulatory authorities, together with branches and agencies of the State Council's financial regulatory authorities, as well as departments of cyberspace and public security, ensure effective connection between online monitoring, offline investigation, and fund tracking, efficiently and accurately identify activities related to virtual currency and real-world asset tokenization, promptly share risk information, improve early warning information dissemination, verification, and rapid response mechanisms.

(6) Strengthened Oversight of Financial Institutions, Intermediaries, and Technology Service Providers. Financial institutions (including non-bank payment institutions) are prohibited from providing account opening, fund transfer, and clearing services for virtual currency-related business activities, issuing and selling financial products related to virtual currency, including virtual currency and related financial products in the scope of collateral, conducting insurance business related to virtual currency, or including virtual currency in the scope of insurance liability. Financial institutions (including non-bank payment institutions) are prohibited from providing custody, clearing, and settlement services for unauthorized real-world asset tokenization-related business and related financial products. Relevant intermediary institutions and information technology service providers are prohibited from providing intermediary, technical, or other services for unauthorized real-world asset tokenization-related businesses and related financial products.

(7) Enhanced Management of Internet Information Content and Access. Internet enterprises are prohibited from providing online business venues, commercial displays, marketing, advertising, or paid traffic diversion services for virtual currency and real-world asset tokenization-related business activities. Upon discovering clues of illegal activities, they should promptly report to relevant departments and provide technical support and assistance for related investigations and inquiries. Based on the clues transferred by the financial regulatory authorities, the cyberspace administration, telecommunications authorities, and public security departments should promptly close and deal with websites, mobile applications (including mini-programs), and public accounts engaged in virtual currency and real-world asset tokenization-related business activities in accordance with the law.

(8) Strengthened Entity Registration and Advertisement Management. Market supervision departments strengthen entity registration and management, and enterprise and individual business registrations must not contain terms such as "virtual currency," "virtual asset," "cryptocurrency," "crypto asset," "stablecoin," "real-world asset tokenization," or "RWA" in their names or business scopes. Market supervision departments, together with financial regulatory authorities, legally enhance the supervision of advertisements related to virtual currency and real-world asset tokenization, promptly investigating and handling relevant illegal advertisements.

（IX） Continued Rectification of Virtual Currency Mining Activities. The National Development and Reform Commission, together with relevant departments, strictly controls virtual currency mining activities, continuously promotes the rectification of virtual currency mining activities. The people's governments of various provinces take overall responsibility for the rectification of "mining" within their respective administrative regions. In accordance with the requirements of the National Development and Reform Commission and other departments in the "Notice on the Rectification of Virtual Currency Mining Activities" (NDRC Energy-saving Building [2021] No. 1283) and the provisions of the "Guidance Catalog for Industrial Structure Adjustment (2024 Edition)," a comprehensive review, investigation, and closure of existing virtual currency mining projects are conducted, new mining projects are strictly prohibited, and mining machine production enterprises are strictly prohibited from providing mining machine sales and other services within the country.

（X） Severe Crackdown on Related Illegal Financial Activities. Upon discovering clues to illegal financial activities related to virtual currency and the tokenization of real-world assets, local financial regulatory authorities, branches of the State Council's financial regulatory authorities, and other relevant departments promptly investigate, determine, and properly handle the issues in accordance with the law, and seriously hold the relevant entities and individuals legally responsible. Those suspected of crimes are transferred to the judicial authorities for processing according to the law.

（XI） Severe Crackdown on Related Illegal and Criminal Activities. The Ministry of Public Security, the People's Bank of China, the State Administration for Market Regulation, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, as well as judicial and procuratorial organs, in accordance with their respective responsibilities, rigorously crack down on illegal and criminal activities related to virtual currency, the tokenization of real-world assets, such as fraud, money laundering, illegal business operations, pyramid schemes, illegal fundraising, and other illegal and criminal activities carried out under the guise of virtual currency, the tokenization of real-world assets, etc.

（XII） Strengthen Industry Self-discipline. Relevant industry associations should enhance membership management and policy advocacy, based on their own responsibilities, advocate and urge member units to resist illegal financial activities related to virtual currency and the tokenization of real-world assets. Member units that violate regulatory policies and industry self-discipline rules are to be disciplined in accordance with relevant self-regulatory management regulations. By leveraging various industry infrastructure, conduct risk monitoring related to virtual currency, the tokenization of real-world assets, and promptly transfer issue clues to relevant departments.

IV. Strict Supervision of Domestic Entities Engaging in Overseas Business Activities

（XIII） Without the approval of relevant departments in accordance with the law and regulations, domestic entities and foreign entities controlled by them may not issue virtual currency overseas.

（XIV） Domestic entities engaging directly or indirectly in overseas external debt-based tokenization of real-world assets, or conducting asset securitization activities abroad based on domestic ownership rights, income rights, etc. (hereinafter referred to as domestic equity), should be strictly regulated in accordance with the principles of "same business, same risk, same rules." The National Development and Reform Commission, the China Securities Regulatory Commission, the State Administration of Foreign Exchange, and other relevant departments regulate it according to their respective responsibilities. For other forms of overseas real-world asset tokenization activities based on domestic equity by domestic entities, the China Securities Regulatory Commission, together with relevant departments, supervise according to their division of responsibilities. Without the consent and filing of relevant departments, no unit or individual may engage in the above-mentioned business.

(15) Overseas subsidiaries and branches of domestic financial institutions providing Real World Asset Tokenization-related services overseas shall do so legally and prudently. They shall have professional personnel and systems in place to effectively mitigate business risks, strictly implement customer onboarding, suitability management, anti-money laundering requirements, and incorporate them into the domestic financial institutions' compliance and risk management system. Intermediaries and information technology service providers offering Real World Asset Tokenization services abroad based on domestic equity or conducting Real World Asset Tokenization business in the form of overseas debt for domestic entities directly or indirectly venturing abroad must strictly comply with relevant laws and regulations. They should establish and improve relevant compliance and internal control systems in accordance with relevant normative requirements, strengthen business and risk control, and report the business developments to the relevant regulatory authorities for approval or filing.

V. Strengthen Organizational Implementation

(16) Strengthen organizational leadership and overall coordination. All departments and regions should attach great importance to the prevention of risks related to virtual currencies and Real World Asset Tokenization, strengthen organizational leadership, clarify work responsibilities, form a long-term effective working mechanism with centralized coordination, local implementation, and shared responsibilities, maintain high pressure, dynamically monitor risks, effectively prevent and mitigate risks in an orderly and efficient manner, legally protect the property security of the people, and make every effort to maintain economic and financial order and social stability.

(17) Widely carry out publicity and education. All departments, regions, and industry associations should make full use of various media and other communication channels to disseminate information through legal and policy interpretation, analysis of typical cases, and education on investment risks, etc. They should promote the illegality and harm of virtual currencies and Real World Asset Tokenization-related businesses and their manifestations, fully alert to potential risks and hidden dangers, and enhance public awareness and identification capabilities for risk prevention.

VI. Legal Responsibility

(18) Engaging in illegal financial activities related to virtual currencies and Real World Asset Tokenization in violation of this notice, as well as providing services for virtual currencies and Real World Asset Tokenization-related businesses, shall be punished in accordance with relevant regulations. If it constitutes a crime, criminal liability shall be pursued according to the law. For domestic entities and individuals who knowingly or should have known that overseas entities illegally provided virtual currency or Real World Asset Tokenization-related services to domestic entities and still assisted them, relevant responsibilities shall be pursued according to the law. If it constitutes a crime, criminal liability shall be pursued according to the law.

(19) If any unit or individual invests in virtual currencies, Real World Asset Tokens, and related financial products against public order and good customs, the relevant civil legal actions shall be invalid, and any resulting losses shall be borne by them. If there are suspicions of disrupting financial order and jeopardizing financial security, the relevant departments shall deal with them according to the law.

This notice shall enter into force upon the date of its issuance. The People's Bank of China and ten other departments' "Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading Speculation" (Yinfa [2021] No. 237) is hereby repealed.

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