Japan’s 10-Year Bond Yield Surges to 1.85%—Highest Since 2008, Raising Global Carry Trade and Liquidity Concerns

, 2025, the highest level since 2008. The move marked a sharp departure from Japan’s long-standing ultra-low interest rate environment and signaled a potential turning point in global liquidity dynamics. Simultaneously, , for the first time in over 17 years, as markets priced in the likelihood of a Bank of Japan (BOJ) rate hike at its December 18-19 meeting.

The surge in bond yields reflects a broader shift in Japan’s monetary policy trajectory. For over three decades, Japan served as a key liquidity source for global markets, with its near-zero interest rates fueling the yen-based carry trade. Investors borrowed low-cost yen to invest in higher-yielding assets such as U.S. Treasuries, European bonds, and risk assets globally. This practice helped underpin global financial conditions for years. But now, , pressure for normalization has intensified.

The political landscape has also evolved. Prime Minister ’s recent meeting with BOJ Governor suggested growing support for a shift in policy. This contrasts with earlier resistance to rate hikes from some domestic factions and marks a crucial turning point for Japan’s monetary framework.

. The expansion of fiscal spending has increased long-term bond issuance at a time when the BOJ is scaling back its intervention. As a result, , a record high.

The implications for global markets are significant. Higher Japanese bond yields reduce the incentive for institutions to seek returns abroad, potentially pulling liquidity out of U.S. Treasuries, equities, and emerging markets. This dynamic directly impacts carry trade strategies that have long relied on the yen as a funding currency. Analysts have warned that such a shift could trigger unwinding of leveraged positions and increase volatility across risk assets.

The crypto market is particularly sensitive to liquidity cycles. With many investors having relied on cheap yen-based leverage to fund exposure to crypto and tech stocks, a reversal of that liquidity flow could lead to sharper price corrections. Recent market behavior has already shown signs of this, .

Economics author and analyst has described the shift as the breaking of Japan’s role as a global financial anchor. “For three decades, Japan was the anchor,” he said. “That anchor is now breaking.” He added that the entire post-2008 financial architecture may need to reprice as capital becomes more selective and expensive.

As the world moves toward a new era of tighter liquidity, markets are recalibrating. The coming weeks and months will be critical, particularly with the BOJ’s policy decision on December 18-19, which could determine the next phase of global capital flows.