Yen's strength and Japanese interest rates soar, Global capital flows are shaken…Risk to Bitcoin too

Abnormal signals detected in the Japanese financial market are adding tension to global capital flows. Investor sentiment, which had shown signs of stabilization following the tariff shock from the United States, is once again shaken by risks originating from Japan.

The most notable indicator is the net long position of the Japanese Yen. According to the U.S. Commodity Futures Trading Commission (CFTC), as of the 15th week of 2025, the Yen's net long position recorded 308,736 cases, the highest ever since the COT was compiled. This figure was only seen during extreme risk-averse phases such as the financial crisis, the European debt crisis, and the early pandemic, indicating that global market participants are actively purchasing the Yen as a safe asset.

The Japanese government bond market is also wobbling. The 30-year bond yield soared to 2.88%, the highest since 2004. This is an increase of 60bp compared to the previous week. The 10-year yield also rose to 1.37%, and the yield spread with the 5-year bond widened to the largest gap in 20 years. This suggests structural market changes beyond short-term adjustments, and as the yields on Japanese bonds rise, the ‘risk-off’ flow, where funds are withdrawn from overseas investment assets, is likely to begin in earnest.

Japan is the world's largest net international investor and the largest holder of U.S. Treasuries. Therefore, if yields rise within Japan, major institutions such as pension funds and insurers may withdraw assets from U.S. Treasuries, global stocks, and even cryptocurrencies. This could shock the global asset market as a whole.

Bitcoin was showing relative strength amid a stock market slump following President Trump's recent tariff announcement but is highly likely to be affected by this Japanese-led funds withdrawal flow. Last year, during a similar period, Bitcoin sharply declined as Japanese carry trades were liquidated.

The current Yen appreciation and the surge in Japanese government bond yields are not just issues confined to Japan but are variables affecting global investment strategies. The digital asset Bitcoin is also not immune to these changes in global liquidity. While solidifying its status as a safe asset, it can once again be put to the test during the process of reshaping money flows.