Japanese bond yields have surprised to the upside in the last days. The 10-year bond hit 1.75%, and the 30-year bond was over 3%, both big moves. These moves have been spurred by increased government borrowing; Japan is rolling out a 17 trillion-yen stimulus package. When a government needs money to stimulate, they borrow. When they borrow, rates go up.
Part of the reason they are doing is the wake-up call GDP gave them; in Q 3 2025 Japan's economy shrank 1.8% on an annualized basis, the first drop in six quarters. If the economy is in trouble, borrowing and spending are a good first-line defense.
With stimulation afoot, the key Japanese variable to look at is not bond rates, but the currency. The currency is a natural expression of concerns and ambitions regarding the economy and government policy.
Regarding the yen, it is concerning that the higher rates have not led to a stronger yen versus the US dollar. When the first sign of rates going up hit, the yen was at about 155. Now, after investors have had time to digest the data, it is weaker by about half a percent. Normally investors would have pounced on the higher yen rates and driven the currency up in value. But they didn't.
The fact that investors did not buy the currency is startling for a couple of reasons. First, there is a drumbeat of negative sentiment towards the US dollar, which means many investors are looking for alternatives to US dollar exposure. For example, it has been reported that large sovereign funds like Tamasek, the Singapore state owned investor, views the US dollar as unattractive and is aggressively hedging exposure. The Chinese and Europeans are known to be hedging too.
Hedging signals concern. If concern is so great, investors would sell US dollars and capture rising yen yields. But this has not happened. Investors are looking for places to go with their dollars. Right now, Japan is not on the list.
From Japan, we can learn a couple of lessons. First, there is more to underlying currency demand than yield. Economic fundamentals like Current Account Balance, Trade Balance, and Government Debt to GDP are key drivers of demand. If these indicators show a rising "Need for Money" interest rates must go up to attract money. Japan is signaling this through their bonds.
Second, once more this proves that diversification wins out. Portfolio exposure to stable Euro, Yen, USD, and Emerging market currencies like Brazil and Mexico should be pursued. Diversification has many benefits, with the main one being spreading out the risk.
Regarding Japan, things are just beginning, and the "worst may be yet to come". It has been shown that Japan needs funding (NFM) to stimulate its economy. If interest rates do not do it, extreme weakness in the yen, to make Japanese assets cheaper, may be needed. If this doesn't work, Japan may have to raise rates to punitive levels.
In short, if you want to own yen stable in your crypto account make sure it is part of a diversified exposure. There are enough stable bonds and coins from firms like Etherfuse to make that happen.
This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.
