Japan's 40-year government bond yield hits 30-year high, global financial markets face re-pricing pressure

Japan’s bond market has just sent a strong signal. On January 20th, the yield on Japan’s 40-year government bonds rose by 5.5 basis points to 4%, reaching the highest level since issuance in 2007. More notably, this is the first time in over three decades that a long-term Japanese government bond yield has reached this level.

Why Did the Japanese Bond Market Suddenly Come Under Pressure?

Policy Uncertainty Triggers Sell-Off

The widespread sell-off in the bond market is fundamentally linked to policy adjustments by the Japanese government. Investors are concerned that the government’s plan to cut the food sales tax could create a fiscal deficit, and these concerns are fully reflected in the bond market. The “Centrist Reform Alliance,” formed by Japan’s largest opposition party and former ruling coalition members, has proposed radical measures, planning to operate a new government-related fund to reduce the food sales tax to zero.

This policy signal raises a critical question: in the context of Japan’s already high government debt, what does further tax revenue reduction mean? The market’s reaction has been to sell off, causing yields to rise.

Historical Context Comparison

What does this comparison indicate? The long-term Japanese government bond yield has returned to 4% for the first time in 30 years, which is not just a numerical change but also a reflection of the market’s reassessment of Japan’s long-term fiscal outlook.

Why Is This Significant for the Crypto Market?

Repricing of Global Risk Assets

The anomaly in Japan’s bond market often signals broader changes in the global financial markets. Rising long-term government bond yields imply:

• Global long-term risk-free rates may face upward pressure
• Investors’ risk appetite for risk assets could decline
• This will impact valuations of all risk assets, including cryptocurrencies

Potential Impact of Yen Appreciation

Volatility in Japan’s bond market is often accompanied by fluctuations in the yen. Rising yields tend to attract international capital inflows into Japan, pushing the yen higher. Yen appreciation has multiple effects on the crypto market, potentially triggering risk asset sell-offs or altering Japanese retail investors’ allocations to cryptocurrencies.

Market Focus

Based on the latest news, several areas to watch include:

• How Japanese policymakers respond to bond market volatility
• Whether yields on other major long-term government bonds globally follow suit
• The subsequent performance of the yen exchange rate
• The extent of repricing in risk assets, including cryptocurrencies

Summary

The 40-year Japanese government bond yield reaching 4% appears to be a domestic fiscal event, but it actually reflects a global reassessment of long-term growth prospects and fiscal sustainability. For the crypto market, this is a risk signal—when traditional financial markets begin adjusting risk pricing, risk assets often face pressure. In the short term, such macroeconomic uncertainties could increase market volatility, requiring close attention to policy developments and shifts in global capital flows.