Long-term Japanese government bond yields have recently surged to historic highs, triggering growing concerns over capital repatriation and the unwinding of carry trades. If this trend continues, it could have significant implications for global capital flows, market stability, and even U.S. asset prices. Does this turbulence in the Japanese bond market align with the long-held views of Arthur Hayes, a vocal Bitcoin advocate?

Long-Term Bond Yields Hit Highs, Capital Repatriation Risk Rises

According to Reuters, Japan’s 40-year government bond saw notably weak demand in its latest auction, the worst result since November 2023. The yield on the bond recently hit a historic high of 3.689%, and currently remains elevated at 3.318%, up nearly 70 basis points since the start of the year.

Yields on 30-year and 20-year Japanese government bonds have also risen by over 60 and 50 basis points, respectively—an unusually sharp increase not seen in years. This has sparked concerns that Japanese capital may begin withdrawing from overseas markets, particularly U.S. assets.

Analysts at ANZ Bank noted that continued yield increases could trigger a “tipping point”, causing Japanese investors to rapidly repatriate funds from abroad.

Rising JGB Yields Could Trigger Global Market Shockwaves

A senior strategist at Société Générale warned that if Japanese government bond (JGB) yields continue to rise, it could lead to a “doomsday” scenario in global financial markets. Higher yields would strengthen the yen, reducing Japanese investors’ appetite for foreign assets—especially U.S. tech stocks, which have historically attracted large amounts of Japanese capital.

Strategists at Quantum Strategy pointed out that Japan is the world’s second-largest net external creditor, with ¥533 trillion (~$3.7 trillion USD) in net foreign assets as of 2024, meaning that market shifts in Japan could have outsized global impacts.

Carry Trade Reversal? The End of the Cheap Yen Era

Carry trades have long relied on Japan’s low-interest environment—borrowing in cheap yen and investing in higher-yielding markets like the U.S. However, rising JGB yields are putting enormous pressure on these positions.

A bond manager at Eastspring Investments noted that Japanese life insurers have already completed much of their long-term bond allocations under regulatory pressure last year. Coupled with reduced bond purchases by the Bank of Japan, the resulting supply-demand imbalance is making yields more volatile.

He warned that if yields rise high enough to lure Japanese capital back home, it could shock U.S. financial markets.

The August Precursor: A Sign of What’s to Come?

In August last year, the BOJ’s interest rate hike led to a rapid unwinding of carry trades, causing major market turbulence. Michael Gayed, a portfolio manager at Tidal Financial Group, said many dismissed that event as a one-off. But if JGB yields keep rising while the U.S. pushes yields down and weakens the dollar, carry trades will face even greater pressure.

Natixis’s Asia-Pacific chief economist warned that continued yen appreciation could hurt Japan’s export-driven economy. The yen has already appreciated over 8% since the start of the year.

A Gradual Unwind? Declining Confidence in the Dollar

Some experts believe this round of carry trade unwinding may be less abrupt than last year. A research director at Amundi said that the short-term interest rate differential has narrowed from 450 bps at the beginning of the year to 320 bps. With less profit margin and higher FX volatility, investors are becoming more cautious about shorting the yen.

A professor at EDHEC Business School suggested that the current shift resembles a “gradual erosion of confidence” rather than a sudden market collapse.

Will Japan Fully Exit U.S. Treasuries? Opinions Split

Despite mounting concerns, some believe a full-scale Japanese exit from U.S. Treasuries is unlikely. A senior bond strategist at State Street Global Advisors said Japanese investment in U.S. Treasuries is driven by structural factors such as the U.S.-Japan strategic alliance and geopolitical cooperation.

Moreover, State Street data shows that Japanese investors’ holdings in U.S. assets are mostly equities, with relatively low exposure to Treasuries. Apollo’s chief economist added that foreign holdings of U.S. stocks total $18.5 trillion, compared to $7.2 trillion in U.S. Treasuries.

Does This Align with Arthur Hayes’s Macro View?

This is an excellent question, as Arthur Hayes (co-founder of BitMEX) has long presented forward-thinking and controversial views on Japan, global monetary policy, and crypto assets. Let’s analyze whether the current situation aligns with his macro thesis:

What Has Arthur Hayes Been Predicting?

1. Long-Term Yen Depreciation and Policy Dilemma
Hayes has frequently argued that the BOJ will sacrifice yen stability to maintain ultra-low rates via Yield Curve Control (YCC). He warns this could lead to capital flight, currency collapse, and ultimately forced money printing and inflation.

2. A Global Currency “Three-Body Problem”
He describes the global monetary system as a “three-body problem”, with U.S., Japan, and EU central banks pursuing incompatible policies. Japan, in his view, is the “leaky valve” of global liquidity, and any shift in its policy could cause a ripple effect worldwide.

3. Bullish on Crypto and Gold as Safe Havens
Hayes believes that when fiat trust erodes, decentralized assets like Bitcoin become the primary escape route for capital.

Does the Current Japanese Bond Market Shock Align with Hayes?

✅ Where It Aligns:

• Capital Repatriation and Carry Trade Breakdown:
  Hayes has long warned that carry trades would collapse once Japan shifts policy. This is exactly what’s happening now—rising JGB yields are pulling Japanese money back home.
• Yen Strengthening and Global Impact:
  Hayes predicted that yen appreciation due to capital repatriation would shock global markets, especially U.S. equities. This mirrors recent warnings by SocGen’s Edwards.
• Policy Mismatch Leading to Liquidity Crunch:
  Hayes foresaw the liquidity risks from the disconnect between U.S. easing and Japan’s tightening—now beginning to materialize.

❌ Where It Diverges:

• Will Japan Start Printing Again?
  Hayes believes Japan will eventually resort to unlimited QE and inflation. But current actions suggest the opposite—the BOJ is scaling back bond purchases and allowing yields to rise.
• Short-Term Yen Strength vs. Long-Term Weakness:
  Hayes expects long-term yen depreciation, yet the yen has appreciated 8% this year. This may contradict his short-term view, though Japan’s economy may not tolerate high rates for long.

Conclusion

Current developments largely align with Arthur Hayes’s macro predictions, though not all of his “endgame” scenarios have played out yet. He has long warned that Japan’s bond market could become one of the biggest global risk triggers—and now, that risk is beginning to surface.