Japanese bonds are unstable - is Bitcoin becoming a new safe haven?

The Japanese government bond market is facing the most severe liquidity crisis since the 2008 financial crisis. This development is raising concerns about a negative financial wave globally, which could directly impact the crypto market. Analysts are sounding the alarm as bond yields soar at a time when long-standing financial structures show signs of cracking.

The Japanese bond crisis could spread globally

In just 45 days, the yield on Japan's 30-year government bonds has surged by 100 basis points, reaching a record high of 3.2%. Meanwhile, the 40-year bonds – considered a "safe" asset – have lost more than 20% of their value, resulting in a loss of over 500 billion USD in the market.

According to analyst Financelot, liquidity in the bond market has fallen to its lowest level since the collapse of Lehman Brothers in 2008 – a concerning signal indicating that the risk of a financial crisis is looming.

! Japanese Bond Market Liquidity Chart | Source: Financelot/XNguyen The main reason is believed to stem from the sudden change in monetary policy of the Bank of Japan (BOJ). After years of pursuing a large-scale bond-buying program, the BOJ suddenly withdrew, causing supply to pour into the market and pushing up yields.

Currently, the BOJ holds 4.1 trillion USD in government bonds, accounting for 52% of the total bonds outstanding in the market. This large scale of holdings has "distorted" pricing levels and investor expectations.

Japan's total public debt has now reached 7.8 trillion USD, pushing the public debt-to-GDP ratio to a record 260%, more than double that of the US.

! Japan's debt/GDP ratio | Source: The Kobeissi LetterAs a result, Japan's real GDP fell by 0.7% in the first quarter of 2025, more than double the forecast of 0.3%. Meanwhile, CPI inflation in April increased to 3.6%, while real wages fell by 2.1% year-on-year, raising concerns about the risk of "stalling" – high inflation accompanied by slow growth.

"Japan needs a major economic restructuring," The Kobeissi Letter warns, emphasizing the fragility of the current economic model.

Bitcoin has emerged as a safe-haven asset

As global investors begin to react to a series of alarming signals from the Japanese financial market, attention is gradually shifting to cryptocurrencies – particularly Bitcoin. This pioneering digital currency is increasingly demonstrating its role as a potential safe haven amid bond volatility.

The "carry trade" strategy with the Yen – in which investors borrow funds at low interest rates in Yen to invest in high-yield assets abroad – is facing serious threats.

According to Wolf Street, the yield on Japanese bonds has surged while the economy has weakened, which has "tightened" these high-leverage positions.

"This enormous mess is coming back and delivering a fatal blow to the market," Wolf Street commented, while suggesting that attempts to escape carry trade positions could trigger a wave of global capital outflows from risk assets.

Volatility has begun to show clearly: as yields in Japan and the UK rise, the demand for holding Bitcoin has also surged in both markets.

"Is it a coincidence that both the UK and Japan are witnessing a surge in demand for Bitcoin?" asked analyst James Van Straten, citing the example of the yield on 30-year UK government bonds nearing its highest level in 27 years.

Meanwhile, Cauê Oliveira – Research Director at BlockTrendsBR – also confirmed the positive correlation between bond volatility and the influx of funds into Bitcoin. This viewpoint was agreed upon by Andre Dragosche – Head of European Research at Bitwise.

"Many large investors are shifting their portfolios from bonds to BTC." Oliveira commented.

! Bitcoin (BTC) Price Movement | Source: TradingViewAs of the time of writing, Bitcoin is trading around $110,000, down slightly by 0.34% in the last 24 hours.

However, the "safe haven" role of Bitcoin also comes with certain risks. According to a recent analysis of the "carry trade" strategy with the Yen, experts warn that if the unwinding of positions occurs chaotically, not only traditional markets but even crypto could face selling pressure, especially when the USD strengthens and the outflow of funds from risky assets increases.

Nevertheless, in the long term, Japan's public debt crisis could reinforce Bitcoin's role as a hedge against currency instability. As traditional assets that are considered "safe," such as long-term government bonds, begin to weaken, more and more large institutions view digital assets as a reasonable alternative.

Justin