Yields on 10-year Japanese government bonds (JGBs) have surged to a 30-year high of 2.85%, adding 18 basis points since the beginning of the month. This increase has had a knock-on effect, pushing up borrowing costs in other major developed markets. For instance, the UK 10-year gilt is now yielding around 4.8%, while the US 10-year Treasury yield is testing 4.5% for the first time in nearly a month, and the German 10-year bund is approaching 3%.
This synchronous rise in global bond yields, including real yields adjusted for inflation, significantly increases the opportunity cost of holding non-income-generating assets such as Bitcoin. Funds invested in cryptocurrencies are not earning the stronger, more reliable returns now available in fixed-income markets. This shift could negate the positive momentum Bitcoin gained from recent indications of softer US inflation risks and weaker-than-expected job growth.
For years, Japan's policy of near-zero interest rates and aggressive quantitative easing suppressed global yields. This environment fostered 'carry trades', where investors borrowed yen cheaply to invest in higher-yielding bonds elsewhere, effectively capping borrowing costs worldwide. The current reversal of this long-standing policy is now having a profound impact.
Bitcoin's price had climbed 8% to approximately $64,000 this month, largely due to two key developments. The first was Federal Reserve Chair Kevin Warsh's statement on July 1st, suggesting inflation posed less of a risk than previously thought. The second catalyst was the June nonfarm payrolls report, released on Thursday, which indicated the US added only about half the forecasted number of jobs, with the labour force participation rate falling to a five-year low of 61.5%.
These factors initially led traders to scale back expectations for higher US interest rates, providing a tailwind for Bitcoin, which found strong support near $58,000 on July 1st before its subsequent rally. However, the hardening of global yields, driven by Japan, introduces a new dynamic that threatens to reverse this positive trend. Even some prominent banks, like Goldman Sachs, still favour yen-funded carry trades, highlighting the systemic influence of Japanese monetary policy on global financial markets.
