For years, the Japanese have adopted an aggressive dovish monetary stance, with their Banks’ rates pinned at 0% for decades. However, the recent tweet by MacroAlf, the CEO of The Macro Pass, discussing the recent policy to increase Japan’s 10-year bond yield to 0.5% raises an interesting question about the potential impact on crypto volatility.
Japan will now allow 10-year yields to trade as high as 0.50%.
And while this seems like a minor policy change, it is likely to cause some serious market volatility.
Why?
A thread.
1/
— Alf (@MacroAlf) December 20, 2022
It is worth noting that the relationship between bond yields and crypto volatility is not necessarily straightforward and can be influenced by various factors. However, a few ways in which an increase in bond yields may affect crypto markets.
One possibility is that an increase in bond yields may lead to a shift in investor preferences. As bond yields rise, they may become more attractive to investors as a source of income, leading some to sell off their crypto holdings in favor of bonds. This could potentially lead to increased selling pressure and higher volatility in the crypto markets.
Another factor to consider is the potential impact on overall market sentiment. For example, an increase in bond yields may signify economic strength and stability, leading to increased risk appetite and a greater willingness to invest in riskier assets such as crypto. On the other hand, if bond yields are seen as a sign of potential inflation or other economic concerns, it could lead to increased risk aversion and a retreat from riskier assets like crypto.
It is also important to consider the role of the Japanese yen in the global economy. The Japanese yen is a major reserve currency and is often used as a safe haven asset during market uncertainty. Therefore, if the rise in bond yields leads to increased demand for the yen, it could potentially lead to a strengthening of the currency and a corresponding decrease in the demand for other assets, including crypto.
Overall, the impact of Japan’s rising bond yields on crypto volatility is likely to be complex and multifaceted and will depend on a variety of factors. Therefore, investors and market participants need to keep an eye on developments in the bond market and other macroeconomic factors that may influence the crypto markets.
It is worth noting that while similar macroeconomic factors may influence bond yields and crypto markets, they are not necessarily directly linked. Crypto markets have their unique drivers and dynamics, and it is important to consider the specific characteristics of the crypto market when analyzing its potential response to events such as an increase in bond yields. However, with the recent policy, there’s bound to be high volatility in the already unstable Crypto market.Â
