Japan clock panic: Global liquidity crisis spreading from bond market to crypto market

The stock market activity, which started at the beginning of the hour in Japan, started to create a domino effect in global financial markets. The sudden sell-off in the Japanese government bond (JGB) market at the opening of trading on Thursday was not limited to Tokyo; It affected a wide range from cryptocurrency markets to stocks.

The crisis that erupted at the beginning of the hour in the Japanese bond market

The Japanese government bond market, which has been under pressure for months, faced a sudden collapse that marked Thursday night. The 30-year JGB yield rose more than 31 basis points in one go to 3.91%. For Japanese leaders, this moment was critical; Because yields have started to test the highest levels of the last 27 years.

“One of the world’s most reliable liquidity supports is starting to fade,” raised the warning voice Ole Hansen, head of commodity strategy at Saxo Bank. The rationale behind this warning is simple yet alarming: this crisis in Japan at the hour meant dynamiting the foundation of not only Japanese bond investors but also global carry trade strategies.

The shock of the crypto markets at the time change

When the market opened around 09:00 in Japan, investors seeking stability began to flee risky assets. Bitcoin has taken a hard descent from its price, which has been hovering around $95,000 in recent weeks. Earlier on Thursday, the cryptocurrency market was under significant pressure; Bitcoin price fell to $83,920 and its 24-hour loss reached 6.23%.

The market panic in Japan has also spread to the stock markets. While the Nikkei index lost 2.5 percent of its value, US futures markets also signaled a decline of about 1.5 percent. As spot crypto trading volumes halved from last year’s $1.7 trillion to $900 billion, it became clear how fragile the market is in the face of macroeconomic uncertainty.

Liquidity giveaway: Risk signal for global markets

The relentless rise in Japanese bond yields is actually symptomatic of a much broader problem. “As yields rise, capital is pulled home, and liquidity is withdrawn from global markets, almost by definition,” Hansen warned.

Global markets, which float on the shoulders of carry trade strategies, have become completely vulnerable to this liquidity contraction that occurred at the beginning of the Japanese hour. For decades, the low yield on Japanese bonds had driven international investors to riskier assets. Now, this dynamic is reversing; capital was being withdrawn to Japan and withdrawn from global markets.

Precious metals rose to new record highs under this sense of risk. Gold exceeded $4,700 per ounce and gained 3 percent, while silver was pushing $100 per ounce, up 7.5 percent.

The options Bank of Japan can make per hour are limited

The policy paths that the Bank of Japan can follow against this crisis have narrowed considerably. If it attempts to impose a yield cap, the selling pressure will be transferred directly to the yen. If they try to tighten monetary policy, a larger bond market decline will be inevitable.

“Whichever path Bank of Japan takes, the result is the same — tighter global liquidity,” Hansen assessed. Jim Bianco, President of Bianco Research, echoed this view, warning, “The old market saying is that their yields will continue to rise until something breaks.”

Unsolvable aspects of the problem that pops up at the beginning of the hour in Japan

In the current scenario, Japanese policymakers are trapped in a vicious cycle. The damage each decision does to global liquidity ultimately comes back to crypto markets, stocks, and other risky assets. This descent, which started at the beginning of the hour in Japan, is actually an indication of how interconnected the global financial system is.

After hovering above $95,000 for most of last week, more difficult times are expected for cryptocurrency investors unless Bitcoin can resist this Japan-based liquidity crisis. The rally on Thursday is not just a market activity; It is a harbinger of a change in the structure of the global capital structure.