Japanese Bond Market Squeeze Affects Global Liquidity and Bitcoin

The global cryptocurrency market has been experiencing a sluggish rally in recent times, with many attributing the decline to various factors such as regulatory pressures and market sentiment. However, a new analysis by XWIN Research suggests that the root cause of this stagnation may lie in a more unexpected area - Japan's bond market.

The analysis points out that Japan's 10-year bond yield has recently hit its highest level since 1999, reaching 2.39%. This surge in yields is not only affecting Japanese investors but also has far-reaching consequences for global liquidity. With approximately ¥390 trillion in government bond holdings, even a 1% rise in yields can trigger tens of trillions of yen in unrealized losses for banks, insurers, and pension funds.

These institutions are then forced to shore up their balance sheets by selling risk assets and pulling capital back home. As Japan is the world's largest foreign creditor, this repatriation has a significant impact on global liquidity, shrinking it everywhere. Bitcoin, being a risk asset that heavily depends on global liquidity, has consequently been affected.

The relationship between Japan's bond market and Bitcoin's price action was also highlighted by stablecoin data. ERC-20 stablecoin supply has returned to all-time highs, indicating that there is plenty of sidelined capital available. However, this money is not flowing into Bitcoin, but rather into stablecoins instead.