The era of "free money" in Japan appears to be ending, creating significant volatility that is rippling through global markets and hitting the cryptocurrency sector with particular force. The Bank of Japan's (BOJ) January 23, 2026 policy decision, while keeping its policy rate guidance around 0.75%, signaled that further hikes remain possible and that 0.75% is not a finish line. This has triggered a dramatic selloff in Japanese Government Bonds (JGBs).
The 10-year JGB yield stood around 2.25% on January 28, roughly double its level from a year ago. The most severe stress emerged at the long end of the curve, with the 40-year yield pushing through 4% during the late-January selloff. This move represents a fundamental challenge to the decades-long assumption that the BOJ would contain volatility and maintain ultra-low yields.
Bloomberg reported that a JGB liquidity gauge climbed to a record high, reflecting large distortions in yield pricing and visible "kinks" across the yield curve, indicating strained market-making capacity and choppy price discovery. The Financial Times noted the BOJ warned about rapid yield moves and stated it was keeping intervention tools available for "irregular" conditions, even as it keeps the door open to further tightening through 2026.
This bond market chaos directly impacts Bitcoin and crypto markets through the mechanism of the yen carry trade. When yen volatility rises, the cost of hedging currency risk increases, forcing leveraged trades to unwind across multiple asset classes simultaneously. In such forced deleveraging events, markets sell what they can, not what they don't like. Cryptocurrencies, being highly leveraged assets, often react early and sharply.
This dynamic played out clearly in late January 2026. Bitcoin dropped sharply as JGB volatility spiked, closing around $86,642 on January 25 and $88,331 on January 26, before trading toward about $89,398 by January 28. The situation intensified over the weekend, with Bitcoin plunging to a low of $75,500 and over $2.5 billion in liquidations across the crypto market. Macro trading desks were reportedly focused solely on yen volatility and intervention chatter, a catalyst that compresses leverage quickly across markets, hitting Bitcoin first.
Analysts note that Japan-driven risk events tend to be sharp and fast, often fading once the market gets a credible release valve, such as a well-received bond auction. A subsequent 40-year JGB auction saw stronger demand, pulling the yield back toward roughly 3.9% and providing temporary relief. The core takeaway is that Japan has become a volatility switch for global markets; when it flips on, Bitcoin behaves like a high-beta liquidity proxy, and the price action can look worse than the underlying story due to simultaneous leverage reduction everywhere.
