Global markets are entering a period of unprecedented friction, and the era of synchronized economic cycles is coming to an end. While the USA quietly restores liquidity, China remains in a state of deflation, and rising bond yields in Japan threaten to destabilize global capital flows.
This has created a fragmented, multifaceted adjustment process that will test both investors and decision-makers.
Global markets: How are the United States, China, and Japan now working against each other?
Global financial markets are entering a period of deep structural tension, as long-held assumptions about synchronized economic cycles break down.
In this context, investors face a fragmented global system, where competing forces shape market behavior. These forces are:
liquidity injections in the USA,
political constraints in China, and
fiscal stress in Japan.
China's debt problem of $18.9 trillion: Why Beijing cannot print?
In China, structural constraints prevent the government from conducting large monetary interventions.
The scale of the problem reaches local government debt of ¥134 trillion ($18.9 trillion). This is spread across 4,000 financing vehicles and was revealed by the collapse in the real estate market, which destroyed key sources of revenue.
Unlike Japan, which used QE to stabilize its economy, China cannot monetize it. Article 29 of Chinese law prohibits purchases of bonds in the primary market. Moreover, capital flight is strictly punished. Debt serves as a political tool rather than an economic obligation. Researcher Shanaka Anslem explained:
"Monetization would break the control mechanism that keeps the Party together."
Result: persistent deflation, growth slowing to around 4%, and a tightly managed renminbi (RMB, China's official currency).
Analysts warn that this will extend disinflationary forces in global markets for years beyond consensus, which Anslem calls the "Long Grind."
Delayed Fed balance sheet: Hidden risks for global markets post-quantitative easing (QE)
The USA faces its own structural challenges. The Federal Reserve officially ended its more than three-year quantitative tightening (QT) program on December 1. This reduced their balance sheet by $2.43 trillion to $6.53 trillion.
Treasury bonds fell to $4.19 trillion, and mortgage-backed securities fell to $2.05 trillion. This wiped out more than half of the QE expansion from the pandemic era.
Analyst Endgame Macro notes that the real threat is not the Fed's balance sheet itself, but the delay of its effects.
The tightening of policy over the past two years has put significant pressure on households. Moreover, corporate bankruptcies are at their highest in 15 years, and small businesses remain without a real safety net.
Even with interest rate cuts and potential QE, policy cannot immediately reverse the stress already flowing through the economy.
The Fed is now moving to purchases under the Reserve Management Program (RMP). Therefore, officials are to buy Treasury bonds worth $20-40 billion per month starting January 2026.
Shanaka Anslem explains that this quietly introduces $480 billion of annual liquidity, preserving QE mechanics off the books.
Meanwhile, bank reserves, already at $3 trillion, are set to grow. Liquidity in markets is no longer abundant and becomes only sufficient, changing the conditions for risky assets, inflation, and credit.
Japan's debt crisis: the 30-year era of ultra-low interest rates is coming to an end
On the other side of the Pacific, Japan faces an accounting reckoning that could spill over into global markets.
Japanese bond yields have surged sharply. Meanwhile, the 20-year yield reached 2.947%. It is the highest since 1998.
Meanwhile, 10-year levels at 1.95% are marked as critical by institutional stress models. The Bank of Japan now has ¥28.6 trillion in unrealized losses, which is 225% of its capital base, making it technically insolvent.
Rising yields threaten $1.13 trillion in American Treasuries held by Japanese investors, as well as the $1.2 trillion yen carry trade, which could unravel and trigger $500 billion in global capital outflows within 18 months. Shanaka Anslem added:
"For 30 years, Japanese yields anchored global interest rates at artificially low levels. Today, they have broken. The world is transitioning to a completely different interest rate regime."
Warning for global markets: The world is entering a three-speed financial reset
The convergence of these forces, namely the expansion of liquidity in the USA, China's fiscal constraints, and Japanese debt stress, signals the end of synchronized cycles and the beginning of a multi-faceted, variable environment.
Analysts warn of structural impacts on credit markets, currencies, and even cryptocurrencies. X, a market observer, notes that the sell-off of Japanese bonds could trigger Tether's depeg. It could also depress Bitcoin and force corporate cryptocurrency holders, such as Strategy, to liquidate. This will create cascading effects in the digital asset market.
Meanwhile, corporate bankruptcies in the USA are rising, reaching 655 filings by October 2025. This is the highest level in 15 years. Shanaka Anslem warns that this is just the beginning, as shadow banks and private credit absorb risks that traditional banks have rejected, masking hidden weaknesses.
Due to tariffs, interest rate pressures, and fiscal tightening, analysts see 2026 as a time for structural adjustments. Additionally, liquidity injections, market psychology, and geopolitical factors will collide to determine winners and losers among asset classes.
The long process appears as an extended period of volatility, driven not by cyclical mistakes but by structural, multi-year changes in monetary policy, fiscal discipline, and global capital flows.
Forces shaping global markets and finance
Investors should watch:
US RMP,
interest rate cuts by the Fed,
shadow credit insolvencies and
the repatriation of Japanese capital,
These forces together transform risk, return, and liquidity in a way not seen since the end of the low-interest era following the global financial crisis (GFC).
To view the latest cryptocurrency market analysis from BeInCrypto, click here.
