🚨Involvement of Japan in Cryptocurrency Market 🚨
Japan’s Endless Money Spigot Is Finally Tightening
For decades, Japan has been the world's go-to bank for cheap cash, earning its title as a massive global liquidity provider. This role stems from its near-zero interest rates, a policy long used to stimulate its own economy. For international investors, this created a golden opportunity: borrow yen for almost nothing, convert it into dollars or other currencies, and invest in higher-yielding assets like U.S. stocks, emerging market bonds, or cryptocurrencies. This strategy is the famous Yen Carry Trade.
The party, however, is winding down. To combat persistent inflation, the Bank of Japan (BOJ) is now normalizing policy. In a landmark move, it raised its benchmark rate to 0.75% in December 2025, the highest level in three decades. Concurrently, Japan's 10-year government bond yield has surged to multi-decade highs, recently trading around 2.069%. This directly attacks the carry trade's profit model by making yen borrowing more expensive.
When these conditions shift, investors scramble to unwind their trades, selling their global assets to repay now-costlier yen loans. This reversal can trigger market-wide stress. We saw this during the 2008 financial crisis and again in August 2024, when a BOJ policy shift caused a major stock sell-off.
The current unwind is already rippling through markets. Following the December 2025 hike, Bitcoin fell 2.8% within hours, and currencies like the Mexican peso weakened as the cheap funding fueling these investments dried up. While analysts note this is a controlled recalibration rather than a crisis like 2008, it marks a profound shift. The era of free-flowing Japanese liquidity is over, reminding all investors that the source of the market's fuel matters just as much as the destination.
