The 1996 Warning & Crypto Pivot

The cost of borrowing money in Japan has hit a high not seen since 1996. On the same morning, the 30-year yield hit 4.185%, and the 10-year government bond yield hit 2.945%.

This is a huge shift for a country that has spent a lot of time fighting deflation with negative interest rates.

Meanwhile, Bitcoin's price has soared 22% in the last week, reaching $80,000 for the first time since May. The central theme is the contrast between the volatile bond market in Japan and the relatively calm crypto sector.

The Carry Trade Arithmetic

Over the course of several years, the yen carry trade was a major factor propelling the world's risk markets.

Investors converted their cheaply borrowed yen into dollars and used them to buy assets with better returns.

Offshore non-banks received about $250 billion in yen loans from the Bank for International Settlements, with more extensive measures totaling about $500 billion.

That's a lot of leverage depending on one assumption: that Japanese rates will stay at zero. This disproves that earlier assumption.

June saw the highest policy rate in 31 years, at 1.0%, set by the Bank of Japan.

During the meeting on September 17–18, the markets are expecting an additional hike. The monetary exceptionalism of the past 30 years is unraveling, and the 10-year yield of 2.88% is more than simply a statistic.