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Japan, the world’s second-largest economy, saw its 20-year government bond yield rise to 2.947%, the highest since 1998. With debt piling up and borrowing costs climbing rapidly, Japan may be forced to bring hundreds of billions of dollars back home. If that happens, U.S. bonds, Tether, and even Bitcoin could be affected.
Experts predict the Bitcoin price could drop 5–8% if Japanese bond yields stay above 2.90%.
Japan’s Debt Trap Is Reaching Its Breaking Point
Japan carries one of the heaviest debt loads on Earth, 263% of its GDP, nearly $10.2 trillion in total.
For decades, they managed this only because interest rates were near zero. But now, with inflation staying above 2% and the Bank of Japan lifting short-term rates to 0.5%, the cost of borrowing is exploding.
At these new yield levels, Japan’s interest bill could jump from $162 billion to $280 billion over the next decade. That means nearly 38% of government income would go on paying interest.
No big country has ever handled debt this big without facing serious problems.
Why This Forces Japan Toward Selling U.S. Treasuries
Japan is the largest foreign holder of U.S. debt, holding over $1.13 trillion in Treasuries. But rising Japanese bond yields now make U.S. bonds unprofitable after currency risk. This means Japanese investors will start coming back home.
Economic models predict that up to $500 billion could leave global markets in the next 18 months, pushing U.S. borrowing costs higher even without a Fed rate hike.
Therefore, Japan’s growing debt problem isn’t just Japan’s problem anymore. It could impact global markets.
How Bitcoin and Tether Are at Risk?
For years, people borrowed cheap money in Japan, about $1.2 trillion, and used it to buy things like stocks, crypto, and other investments. Now, if Japan sells U.S. bonds, others may follow.
If U.S. bond prices drop, Tether, which holds a lot of Treasuries, will come under pressure. And if Tether falls, Bitcoin usually falls too.
We’ve seen this before, when in July 2024, a BOJ rate hike caused an 18% Bitcoin drop to $53,000, causing nearly $3 billion in value to be wiped out from the crypto market
Even recently, when BOJ just hinted at a rate hike, Bitcoin fell from $92,000 to $83,832.
Right now, if Japanese yields remain above 2.90%, Bitcoin could move down toward the $87,000 support. However, Trump’s pro-crypto stance and ETF inflows provide buffers, potentially limiting losses to 5-8%.
As of now, Bitcoin is trading near $91,728, about 8% below its earlier highs, with the total crypto market cap at $3.1 trillion.