Japan bond market chaos threatens to trigger unprecedented Bitcoin liquidations as the era of free money ends

The Japanese government bond (JGB) market is experiencing significant stress, with the 40-year yield spiking above 4%, signaling the end of the era of 'free money' funding that Japan offered globally. This volatility stems from the Bank of Japan (BOJ) maintaining a path for potential future rate hikes, even while keeping the policy rate near 0.75%. The resulting chaos in JGB liquidity, particularly at the long end, forces leveraged trades across markets to shrink. Bitcoin is highly susceptible because it often trades like a high-beta liquidity asset during forced deleveraging events. When yen volatility rises, the yen carry trade—a popular funding mechanism—becomes expensive, leading to unwinds that impact various markets, including crypto. While recent JGB auctions provided temporary relief, the core issue remains: Japan can no longer guarantee both low yields and low volatility. This new reality means Japan's bond market acts as a 'volatility switch'; when it flips on, the resulting leverage compression hits Bitcoin hard, causing sharp sell-offs and liquidations, even if the underlying macro story doesn't fully warrant such a severe reaction.

(Source：CryptoSlate)