Japanese government bond yields surpass 1%, signaling the start of financial market "ghost stories" globally

By Liam, TechFlow

Tell you a horror story:

Japan's 2-year government bond yield has risen to 1% for the first time since 2008; the 5-year yield increased by 3.5 basis points to 1.345%, the highest since June 2008; the 30-year yield briefly touched 3.395%, hitting a record high.

The significance is not just that "interest rates have broken through 1%", but rather:

Japan’s era of extreme monetary easing over the past decade is being permanently written into history.

From 2010 to 2023, Japan's 2-year bond yield hovered almost entirely between -0.2% and 0.1%. In other words, money in Japan was nearly free—or even subsidized—to borrow.

This was due to Japan's economy having remained trapped in deflation since the 1990 bubble burst—stuck with stagnant prices, flat wages, and weak consumption. To stimulate growth, the Bank of Japan adopted the world’s most aggressive and extreme monetary policies: zero or even negative interest rates, making capital as cheap as possible. Borrowing cost virtually nothing, while keeping money in banks could incur fees—forcing people to invest or spend.

Now, Japan’s bond yields have turned positive across the board, rising to 1%. This shift affects not only Japan itself, but also the global economy in at least three ways:

First, it signifies a complete turnaround in Japan’s monetary policy.

Zero rates, negative rates, and YCC (Yield Curve Control) are over. Japan is no longer the sole major economy maintaining “ultra-low interest rates.” The era of easy money has been definitively ended.

Second, it reshapes the global structure of capital costs.

In the past, Japan was one of the world’s largest overseas investors (especially pension funds like GPIF, insurers, and banks), because domestic interest rates were so low. To chase higher returns, Japanese institutions invested heavily abroad—in the U.S., Southeast Asia, and China. Now, as domestic rates rise, the incentive for Japanese capital to go overseas weakens, and funds may even flow back from abroad into Japan.

Finally, and what traders care about most: a 1% rise in Japanese interest rates means the systemic unwind of the global carry trade funding chain built over the past decade on Japan’s ultra-cheap money.

This will affect U.S. stocks, Asian equities, foreign exchange markets, gold, Bitcoin, and even global liquidity.

Because carry trades have long been the invisible engine of global finance.

The End of Yen Carry Trade

Over the past decade, a key reason behind the continuous rise of global risk assets such as U.S. stocks and Bitcoin has been the yen carry trade.

Imagine borrowing money in Japan at nearly zero cost.

Borrow 100 million yen at an interest rate of 0%–0.1%, convert it into dollars, then use it to buy U.S. Treasury bonds yielding 4%–5%, or invest in stocks, gold, or Bitcoin. Eventually, convert the proceeds back into yen to repay the loan.

As long as the interest rate differential exists, you profit—the lower the rate, the greater the arbitrage.

No exact public figures exist, but global institutions generally estimate the scale of yen carry trade between $1–2 trillion at the low end and $3–5 trillion at the high end.

This has been one of the largest and most invisible sources of liquidity in the global financial system.

Many studies even argue that the yen carry trade was one of the true forces driving new highs in U.S. stocks, gold, and BTC over the past decade.

The world has long used Japan’s “free money” to inflate risk assets.

Now, Japan’s 2-year bond yield has risen to 1% for the first time in 16 years—meaning part of this “free money pipeline” has been shut off.

The result?

Foreign investors can no longer borrow cheap yen for carry trades, putting pressure on stock markets.

Domestic Japanese capital begins flowing back home, especially from life insurers, banks, and pension funds, which will reduce their exposure to overseas assets.

Global capital starts withdrawing from risk assets. Whenever the yen strengthens, it often signals declining global risk appetite.

How Will Stock Markets Be Affected?

The U.S. bull market over the past decade was fueled by a flood of cheap global capital—and Japan was one of its biggest pillars.

Rising Japanese interest rates directly impede massive inflows into U.S. equities.

Especially now, when U.S. stock valuations are extremely high and AI-driven rallies face skepticism, any withdrawal of liquidity could amplify corrections.

The impact extends to all of Asia’s equity markets. South Korea, Taiwan, Singapore, and others previously benefited from yen carry trade flows.

With Japanese rates rising, capital begins returning home, increasing short-term volatility across Asian stock markets.

For Japan’s own stock market, rising domestic rates will weigh on equities in the short term—especially export-dependent firms. But in the long run, interest rate normalization helps the economy escape deflation, re-enter growth mode, and rebuild its valuation framework—ultimately proving beneficial.

This might be why Buffett continues to increase his investments in Japanese stocks.

Buffett first publicly disclosed in August 2020—on his 90th birthday—that he had acquired approximately 5% stakes in each of Japan’s five major trading houses, with a total investment value of around $6.3 billion at the time.

Five years on, with rising share prices and continued buying, Buffett’s holdings in these five firms have surged past $31 billion in market value.

During 2022–2023, when the yen fell to near 30-year lows, Japanese equity assets were deeply discounted. For value investors, this presented a rare opportunity: cheap assets, stable profits, high dividends, and potential currency reversal—all highly attractive.

Bitcoin and Gold

Beyond equities, how do rising yen and interest rates affect gold and Bitcoin?

Gold’s pricing logic has always been simple:

Weak dollar → higher gold price; falling real rates → higher gold price; rising global risks → higher gold price.

Each of these factors is directly or indirectly linked to the turning point in Japan’s interest rate policy.

First, rising Japanese interest rates mean a stronger yen. Since the yen accounts for 13.6% of the U.S. Dollar Index (DXY), a stronger yen directly pressures DXY. A weaker dollar removes the biggest headwind for gold, making price gains more likely.

Second, Japan’s rate reversal marks the end of over a decade of “cheap global money.” As yen carry trades unwind and Japanese institutions cut overseas investments, global liquidity declines. During liquidity contraction, capital tends to exit high-volatility assets and shift toward gold—as a settlement asset, safe-haven asset, and counterparty-risk-free asset.

Third, even if Japanese investors reduce gold ETF purchases due to higher domestic rates, the impact is limited. Global gold demand is primarily driven not by Japan, but by central bank buying, ETF inflows, and rising purchasing power in emerging markets.

Therefore, the impact of this surge in Japanese yields on gold is clear:

Short-term fluctuations possible, but medium- to long-term outlook remains positive.

Gold is once again positioned within a favorable combination of “rate sensitivity + dollar weakening + rising safe-haven demand,” making it fundamentally bullish in the long run.

Unlike gold, Bitcoin is arguably the most liquid risk asset globally—traded 24/7 and highly correlated with the Nasdaq. Thus, when Japanese rates rise, yen carry trades reverse, and global liquidity tightens, Bitcoin is often among the first assets to fall. It is extremely sensitive to market shifts—like a “liquidity ECG” for the market.

But short-term weakness does not equal long-term pessimism.

Japan entering a rate hike cycle implies rising global debt costs, heightened U.S. Treasury volatility, and growing fiscal pressures worldwide. In this macro backdrop, assets with “no sovereign credit risk” are being re-evaluated: gold in traditional markets, and Bitcoin in the digital realm.

Therefore, Bitcoin’s path is clear: falling short-term with risk assets, yet gaining new macro-level support mid-term as global credit risks rise.

In short, the era of risk assets thriving on “Japan’s free money” over the past decade is over.

The global market is entering a new interest rate cycle—one that is more realistic, and more brutal.

From equities and gold to Bitcoin, no asset stands immune.

When liquidity recedes, only those assets that remain standing prove truly valuable. At times of cyclical transition, understanding the hidden funding chains becomes the most critical skill.

The curtain on the new world has already risen.

Now it’s a matter of who adapts faster.