Why Japan's Bond Yields Are the Fuse Under Global Risk Assets

The bottom line: when Japan's yields rise, global risk assets wobble

I've been repeating one idea on this channel for years. Japanese government bond yields, Bitcoin, and US tech stocks look unrelated on the surface, but they're actually strung together on a single line. And right now that line is being pulled tight.

This week Japan's producer price index came in at 4.9% year-over-year. The forecast was 3%, so we got nearly double the expected figure — a genuine shock. US PPI the same week also blew past its 4.9% forecast to hit 6%, but honestly, I think the Japanese number is the scarier one.

Why Japan — the world's low-rate piggy bank

Japan has long been the funding source for global investors. Back around 2020, you could borrow on the 30-year at rates that were essentially interest-free.

What that meant in practice: hedge funds, sovereign wealth funds, and all sorts of global money borrowed cheaply in Japan and deployed that capital into US stocks, real estate, and bonds. It was effectively free money chasing risk assets. We call it the carry trade.

But Japan is now seeing one of the fastest run-ups in bond yields in its history. The 10-year is at levels we've never seen, and the 30-year keeps grinding higher.

The turning point: when free money disappears

The core issue is that borrowing cheap in Japan to buy US assets is no longer easy.

When low-rate borrowing gets expensive, the fuel behind global money buying US Treasuries and big tech starts to dry up. The very funding source propping up US tech and bonds runs thin. That's why I think Bitcoin tracks the Japanese bond market so oddly closely.

I've never claimed to know when this hits the market. But I've always said that at some point it has to matter — and I think that tension is now surfacing in US bond yields.

The positions I'm actually holding

I currently have two trades on, both betting on rising US yields.

• TLT puts: I'm long $85 puts on TLT, the ETF tracking 20-plus-year US Treasuries. That's a bet on bond prices falling — meaning yields rising.
• Long an ultra-short Treasury ETF: I'm long a 2x inverse 20-plus-year Treasury bond ETF. Both positions point the same way: higher yields.

I've made the bet that inflation is going to be a sticky problem in the here and now. It's not certainty — trading is ultimately educated guessing. But the macro trends I'm watching point that way.

Risks and the counterargument

This scenario could be wrong, of course. If the Bank of Japan calms its market or inflation cools quickly, the rising-yield bet takes a hit. We could also see a short-term pullback in yields.

But if the macro narrative changes, I'll adapt with it. A trader's job isn't to make correct prophecies — it's to adjust fast when the data shifts. Right now the data I'm seeing says this Japan-driven yield problem won't unwind anytime soon.