In Japan, amidst intense debates surrounding the "high-pressure economy" and the pace of interest rate hikes, former Bank of Japan (BOJ) policy board member Takahide Harada publicly stated that, as the government exerts all efforts to boost the economy, monetary policy should adopt a cautious stance towards interest rate increases. Meanwhile, the yield on Japan's 30-year government bonds has risen to approximately 3.45%, and the 40-year yield to about 3.715%, both at historical highs. After the policy interest rate was raised to around 0.75%, the yen exhibited a "rate hike leading to depreciation" trend, prompting the market to reprice inflation expectations and global liquidity. Under the combined pressures of macro tightening expectations, USDT rating downgrades, and stricter regulations, the cryptocurrency market stands at a critical crossroads between "high-pressure economic re-inflation" and "forced tightening interest rate reversal."
Core of the Event
The latest debate surrounding Japan's policy direction centers on the contradiction of "full fiscal expansion versus whether monetary policy should tighten in sync." In a recent interview, Takahide Harada clearly expressed that the cabinet led by Prime Minister Fumio Kishida is stimulating economic growth through massive borrowing, and in this context, the BOJ should remain highly cautious about further interest rate hikes rather than hastily suppressing inflation through continuous rate increases. This indicates that as Japan's economy has just emerged from a long period of low inflation, and the government opts for a "high-pressure economy" approach to boost nominal growth, the pace of tightening by monetary authorities is becoming the focal point of policy gamesmanship.
From the policies implemented and market data available, the BOJ has shifted from a long-term ultra-low interest rate environment to raising interest rates, with the policy rate lifted to around 0.75%, which the market views as Japan officially entering a new round of interest rate hikes. Concurrently, the Japanese government plans to issue approximately 29.6 trillion yen in new government bonds in the fiscal year 2026 for fiscal stimulus financing, increasing upward pressure on long-term rates. The yield on 30-year government bonds is currently around 3.45%, and 40-year bonds at about 3.715%, both reflecting a historical high, indicating that market concerns about inflation and fiscal sustainability are accumulating.
More striking is the performance of the exchange rate. After the interest rate hike this year, the yen has not continued to strengthen but has instead depreciated in phases, exhibiting the typical characteristic of "rate hikes leading to depreciation," raising doubts among some market participants about the effectiveness of this round of interest rate hikes and the credibility of Japan's policy mix. BOJ meeting minutes show that a minority of members believe that the yen's depreciation could push up inflation through import prices, leading to inflation overshooting, while other members pointed out that inflation expectations among businesses and households have risen to around 2%, warning of the need to be cautious about price upward risks, and specifically noting that "fiscal policy is an important factor in formulating economic and price forecasts."
In terms of policy philosophy, the Kishida cabinet's "high-pressure economy" path aims to stimulate demand through active fiscal measures, combined with accommodative monetary and tax policies, attempting to internalize the 2% inflation target into wage and pricing behavior. Harada further emphasized that a significant portion of the current price increase stems from supply-side and imported factors, such as rising food costs like rice; in this structure, simply relying on interest rate hikes to suppress cost-push inflation has limited effectiveness and may prematurely raise financing costs at the early stage of fiscal expansion, interrupting the still fragile recovery process.
Amid the dislocation between "fiscal throttle fully pressed" and "should monetary policy simultaneously hit the brakes," Japan's policy mix is undergoing a directional repricing.
Incentive Analysis: News, Funding, and Sentiment
From the news perspective, the trigger for this round of debate comes from three overlapping levels: Harada's public statements, the Kishida government's fiscal expansion plan, and differing judgments within the BOJ regarding inflation and exchange rates. Harada clearly supports the "high-pressure economy" led by Kishida, advocating for the coordination of fiscal, monetary, and tax policies, arguing that in a phase of long-term insufficient demand and just beginning wage recovery, it is inappropriate to rush into interest rate hikes; he also emphasizes that supply-side and imported inflation are significant, and that interest rate hikes, a traditional demand-side tool, "address the symptoms but not the root cause." This contrasts with the concerns of some BOJ members about the "risk of inflation overshooting," making the market aware that the divergence between internal BOJ views and external think tanks regarding the pace and intensity of policy is widening.
On the funding side, the comprehensive rise in Japanese government bond yields is the most visible market signal. The 30-year yield is around 3.45%, and the 40-year yield is about 3.715%, representing a structural increase from the previously long low levels, indicating that the long-term risk-free rate denominated in yen is no longer part of the "zero interest rate world." The Japanese government plans to issue approximately 29.6 trillion yen in new government bonds in the fiscal year 2026, exacerbating supply pressures; as interest rate hike expectations gradually warm up, bond investors naturally demand higher risk compensation. This process directly compresses the yield spread between Japanese bonds and U.S. and European bonds, altering the return structure of cross-currency carry trades.
In terms of cryptocurrency-related capital flows, macro funding tightness intertwines with internal credit events. At the end of November, S&P Global downgraded USDT to the lowest level in its stablecoin assessment framework, citing reasons including an increased proportion of high-risk assets (such as Bitcoin, gold, corporate bonds, etc.) in reserve assets and low transparency in information disclosure. Approximately 5.5% of its reserves are in Bitcoin, and about 5.4% in precious metals, which means that when Bitcoin briefly fell below $85,000 in early December, USDT's asset quality theoretically faced certain market value volatility pressure. Although USDT's trading price against the dollar remains within the range of 0.998-1.002 dollars, without substantial decoupling, and its market capitalization is around $185 billion, accounting for nearly 60% of the entire market, the increase in its risk premium and rating downgrade is raising the funding cost sentiment across the entire cryptocurrency system.
Sentiment is characterized by "macro caution and structural differentiation." On one hand, uncertainty in Japanese policy keeps global funds wary of yen assets and the Japanese bond market; on the other hand, the cryptocurrency community is highly sensitive to the USDT rating event and the Chinese regulatory authorities' classification of related token businesses as illegal financial activities, believing that cross-border gray channels are under short-term pressure, with some funds seeking other dollar-pegged assets or fiat currency entry and exit channels. Overall, risk appetite has clearly cooled compared to earlier periods, but it has not yet evolved into widespread panic.
The divergence in Japan's "high-pressure economy + cautious interest rate hikes" on the news front, combined with the soaring Japanese bond yields and the pressure on USDT ratings on the funding side, collectively shapes the current cautious and weak sentiment environment in both global and cryptocurrency markets.
Deep Logic: Macroeconomic Background and Cross-Asset Connections
From a deeper logical perspective, Japan is undergoing a paradigm shift from "long-term negative interest rates + global financing currency" to "moderate positive interest rates + re-pricing of the domestic yield curve." Historical experience shows that in a long-term zero interest rate environment, the yen has been widely used as a financing currency, forming a carry position of about $9 trillion: the financing side primarily uses low-cost yen, while the asset side allocates globally high-yield assets, including stocks, bonds, and highly leveraged financial products. As the policy rate rises from 0.5% to around 0.75% and long-term yields rise significantly, the relative attractiveness of yen assets increases, and the risk-return ratio of carry trades begins to deteriorate, tightening the global implicit liquidity "dark line."
Currently, the market generally assumes through scenario analysis that if small interest rate hikes continue at intervals in the future, ultimately approaching some "neutral interest rate" (for example, around the 1.75% level discussed in the market), then the unwinding of yen carry positions will be a gradual process lasting several years, bringing a mild but persistent liquidity headwind to risk assets. However, if inflation or exchange rate pressures lead to a faster pace of interest rate hikes, the risk of capital flowing back to Japan and concentrated unwinding will significantly increase, resulting in a more severe repricing of global asset prices.
At the same time, the yields on Japan's 30-year and 40-year government bonds have become a "second yield curve" that global asset management institutions must re-evaluate. For long-term funds such as insurance and pensions, when the long-term risk-free rate denominated in yen rises above 3%, some funds originally directed overseas may choose to flow back domestically to match yen liabilities. This will weaken the traditional model of "borrowing yen to buy high-yield assets," raising the weighted average financing cost of global funds and creating valuation compression pressure on asset classes that rely on leverage, including highly volatile cryptocurrency assets.
The liquidity structure within the cryptocurrency market also appears more fragile under macro headwinds. With a market capitalization of about $185 billion, USDT accounts for nearly 60% of the relevant market share and serves as the foundational liquidity tool in the vast majority of trading pairs and DeFi scenarios. Although the rating downgrade and asset structure controversy have not yet triggered a price decoupling, they have clearly heightened market attention to extreme scenarios; combined with China's tightening policy that classifies related token businesses as illegal financial activities, some channels that originally relied on USDT for cross-border capital flows are temporarily obstructed. The already weak trading volume during the holiday season amplifies the price elasticity brought about by any directional shocks.
The macro-level "yen carry contraction + Japanese bond yield repricing," combined with the internal cryptocurrency "USDT risk premium increase + regulatory pressure," collectively constitutes the main theme of the current liquidity environment, and this main line is far more decisive than single currency price fluctuations.
Bull-Bear Game: Reflections of Divergence Between Japan and Global Assets
In this macro environment, the debate between bulls and bears regarding Japan's "high-pressure economy" path is, in fact, being reflected in the global asset market, especially in the bull-bear game within the cryptocurrency market.
The core of the bullish logic is re-inflation and nominal growth recovery. Supporters argue that Japan has long been trapped under the shadow of low inflation or even deflation, with insufficient demand and stagnant wages, leading to long-term low inflation expectations among businesses and households. Currently, against the backdrop of full fiscal expansion, moderately tolerating slightly higher inflation, combined with cautious and slower interest rate hikes, can help promote wage increases and investment recovery, transforming the 2% inflation target from an "exogenous constraint" into "endogenous inertia." In this scenario, a rebound in nominal GDP growth and real interest rates being kept at low levels are favorable for the valuation of risk assets, including stocks and some cryptocurrency assets. For cryptocurrency bulls, if major global economies lean more towards a combination of "high-pressure economy + moderate inflation," then digital scarce assets represented by Bitcoin can be further reinforced as long-term hedging tools and asset allocation targets.
The bearish logic, on the other hand, focuses on the risks of fiscal-driven inflation and the central bank being "behind the curve." Skeptics point out that Japan's long-term government bond yields have reached historical highs, while improvements in growth and productivity have not kept pace; if the yen continues to depreciate, pushing up CPI through import channels, and inflation expectations among businesses and households rise again, then delaying tightening under political pressure will only accumulate problems. At that point, the BOJ may be forced to implement more aggressive interest rate hikes or balance sheet reductions under higher inflation and a more deteriorated credit environment, equivalent to a round of "catch-up tightening." In this scenario, the yen would strengthen rapidly, and the approximately $9 trillion in carry funds would concentrate on unwinding, significantly intensifying the one-time adjustment pressure on global risk assets, while cryptocurrency assets, due to their most flexible liquidity and highest risk appetite, often become the first and most significantly affected segment.
A neutral perspective emphasizes the mismatch between inflation structure and monetary tools. Currently, a significant portion of Japan's price increases stems from rising food prices, such as rice, and increased energy and import costs; this type of cost-push inflation is not entirely sensitive to interest rates; simply suppressing demand through interest rate hikes may only harm already weak domestic demand and investment, with limited effectiveness in curbing inflation itself. Additionally, Japan's aging population and low potential growth make monetary tightening more likely to cause "overkill" on growth, which explains why figures like Takahide Harada hold a cautious attitude towards rapid interest rate hikes.
In the eyes of bulls, if Japan's "high-pressure economy + cautious interest rate hikes" succeeds, it will open a round of nominal growth upward and controlled real interest rates for re-inflation trades; in the eyes of bears, once inflation and exchange rates spiral out of control, a delayed central bank will only trigger a more severe global liquidity contraction, with cryptocurrency assets being the most volatile chips in this game.
Outlook: Three Scenarios and Strategic Insights for the Cryptocurrency Market
Looking ahead, regarding Japan's policy path and global asset pricing, three main scenarios can be roughly outlined, each with different impacts on the cryptocurrency market.
The first scenario is the "successful implementation of the high-pressure economy," which means a balance of moderate inflation and controlled interest rate hikes. If Japan's real wages continue to rise, private sector capital expenditures recover, corporate profits improve, and the endogenous components of inflation, such as wages and service prices, gradually increase while input-driven inflationary pressures ease, then the long-term yields on Japanese government bonds stabilize at high levels, and government bond auctions proceed smoothly, market concerns about fiscal sustainability will ease. In this case, the Bank of Japan can gradually align the policy interest rate towards a neutral range without aggressive rate hikes. During this process, the yen will gradually stabilize or even appreciate slightly, and the unwinding pace of yen carry trades will be relatively mild, with the tightening of global liquidity being manageable. For the cryptocurrency market, this means that after a brief period of pressure, capital attention will return to the main narratives of the U.S. monetary cycle, industry growth, and application diffusion, providing mainstream assets with an opportunity to regain valuation support in an environment of "moderate inflation + low real interest rates."
The second scenario is "inflation overshooting and forced tightening," accelerating the reversal of yen carry trades. If the yen continues to weaken, import prices push the CPI consistently above the 2% target, and businesses and households significantly raise prices in inflation expectations and wage negotiations, while long-term yields on Japanese government bonds further soar and auction demand shows signs of insufficiency, the market will force the Bank of Japan to accelerate the pace of interest rate hikes or balance sheet reductions to re-establish credible anchors for inflation and exchange rates. In this situation, the yen may experience rapid appreciation, leading to concentrated unwinding of carry positions, and global high-leverage, high-beta assets may face liquidity-driven adjustments. The cryptocurrency market, due to its structural high leverage and significant proportion of derivatives, often amplifies short-term declines, with capital more inclined to remain in the most liquid large-cap currencies and major pegged assets, while marginal assets and small-cap tokens face non-linear downside risks.
The third scenario is the "return of deflationary concerns," meaning that during the process of interest rate hikes and fiscal expansion, if external shocks (such as a global demand slowdown or trade frictions) lead to weak Japanese exports and investments, causing the CPI and inflation expectations to fall again, and wage growth stagnates, the market will worry that Japan will be prematurely pushed back into a low-inflation state while "inflation has not yet stabilized." At this point, the Bank of Japan may be expected to pause or even reverse some tightening measures, leading to a renewed weakening of the yen and a return to the old narrative of "low inflation + low interest rates." For cryptocurrencies, if this scenario coincides with renewed easing of U.S. monetary policy, it may be favorable for asset prices in the medium term, but in the early stages of the path transition, macro uncertainty will still bring high volatility.
In this environment of multi-path uncertainty, the key for cryptocurrency investors is to establish a set of actionable observation indicators rather than relying on a single narrative. Three types of signals can be focused on: first, the correlation between long-term Japanese government bond yields and the yen exchange rate, serving as a leading indicator of the tension in yen carry trades; second, changes in the Bank of Japan's public documents regarding the attention to corporate and household inflation expectations and wage data, which are important clues for assessing its tolerance for "inflation overshooting"; third, the market capitalization changes and short-term discounts/premiums of mainstream pegged assets like USDT, used to monitor whether there is a structural contraction in internal cryptocurrency liquidity.
During the phase of "rising interest rate expectations + long-term rates increasing," moderately reducing leverage, controlling high-beta exposure, and increasing liquidity buffers will be more helpful in navigating potential liquidity contraction periods; once Japan's high-pressure economic path is gradually confirmed and inflation is mild and controllable, gradually increasing allocations to mainstream assets with clear narratives that are viewed positively in the long term may be a more robust pacing arrangement (this paragraph does not constitute any investment advice).
From a longer-term perspective, Japan's transition from ultra-low interest rates to an interest rate hike cycle not only changes the pricing logic of domestic assets but is also reshaping the "second main line" of global liquidity: one line is the U.S. dollar interest rate cycle led by the Federal Reserve, and the other is the repricing of yen carry trades and Japanese long-term rates. For participants in the cryptocurrency market, understanding the misalignment in timing and intensity between these two main lines is more beneficial for grasping structural opportunities amid macro volatility than simply focusing on the price curve of Bitcoin itself.
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