Bitcoin Turns Positive for 2025, but Rising Japanese Bond Yields Threaten Global Liquidity

Bitcoin officially turned positive for 2025, recovering more than 1.2% after steep liquidations earlier in the year. BTC briefly climbed back to $94,000 before pulling back ahead of the Federal Reserve’s policy update. While the Fed is expected to cut rates for the third consecutive time, the crypto market is facing a deeper structural risk: Japan’s rapidly rising bond yields.

BOJ Governor Kazuo Ueda’s recent comments about reassessing rate hikes sent Japan’s two-year bond yield above 1% for the first time in 17 years, while 20-year yields surged to 2.947%, a level not seen since 1998. This matters because Japan has long been the backbone of global liquidity through the yen carry trade, allowing investors to borrow cheaply in yen and invest in higher-yielding global assets — including cryptocurrencies.

With Japanese yields rising, two outcomes now threaten global markets:

1. Capital repatriation into Japan

2. Forced unwinding of yen-funded leveraged positions

Bitcoin is extremely sensitive to liquidity cycles, and markets have witnessed this before.

• In July 2024, BOJ tightening triggered an 18% Bitcoin crash, wiping out $3 billion from crypto.

• Recently, after another BOJ signal, BTC fell from $92,000 to $83,832, as the yen strengthened and carry trades unwound.

Analysts warn that if Japanese yields remain above 2.9%, BTC could drop another 5–8%, with $87,000 acting as key downside support.

Japan’s domestic challenges amplify global risks. With a staggering 263% debt-to-GDP ratio — about $10.2 trillion — rising interest costs could force the government and private sector to pull capital back home. Japan is also the largest foreign holder of U.S. Treasuries, with $1.13 trillion in holdings. As Japanese yields rise, U.S. bonds become less attractive, potentially triggering large-scale selling.

Estimates suggest that up to $500 billion could exit global markets over the next 18 months if Japanese investors shift back to domestic assets. That alone could push U.S. borrowing costs higher, regardless of Fed policy.

Meanwhile, Japan recently passed a 21.3 trillion yen ($136B) stimulus package, but investor appetite for domestic bonds remains weak due to soaring debt and rising yields. IMF data shows Japan’s debt levels surpass nearly all developed nations — even as U.S. federal debt climbs toward unprecedented levels.

For the crypto sector, the risk is clear:
A liquidity contraction caused by yen repatriation would reduce speculative capital flows into Bitcoin, altcoins, and even stablecoins such as Tether (USDT). Global risk assets could face broad sell-offs if investors shift toward safer markets.

While some analysts argue that major Japanese institutions adjust portfolios slowly — reducing the risk of a sudden shock — the broader liquidity threat remains. Cryptocurrencies, which thrive on abundant leverage and liquidity, face potential turbulence if Japan continues tightening.