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Japan’s government bond market faces its worst liquidity crisis since the 2008 financial meltdown. This has prompted fears of a broader economic contagion that could ripple into global crypto markets.  Analysts are sounding the alarm as bond yields surge and long-standing financial structures unravel. Japan’s Bond Market Crisis Sparks Global Contagion Fears In just 45 days, Japan’s 30-year government bond yield has surged 100 basis points (bps) to a record 3.20%. Meanwhile, the 40-year bond, previously seen as a “safe” investment, has shed more than 20% in value, with over $500 billion in market losses.  According to analyst Financelot, liquidity in the bond market has also deteriorated to levels last seen during the Lehman Brothers collapse, suggesting a potential impending financial crisis.  “Japan’s bond market liquidity has dropped to 2008 Lehman crisis levels. Are we about to experience another financial crisis?” wrote Financelot on X (Twitter). Japan’s Bond Market Liquidity. Source: Financelot on X The crisis traces back to the Bank of Japan’s (BOJ) recent policy pivot. After years of aggressive bond-buying, the BOJ abruptly pulled back, flooding the market with supply and driving yields higher.  The central bank still holds $4.1 trillion in government bonds, 52% of the total outstanding. With this, its grip on the market has distorted pricing and investor expectations. Japan’s total debt has ballooned to $7.8 trillion, pushing its debt-to-GDP ratio to a record 260%, more than double that of the US. Japan’s Debt-to-GDP ratio. Source: The Kobeissi Letter The fallout has been swift. Japan’s real GDP contracted 0.7% in Q1 2025, more than double the expected 0.3% drop. Meanwhile, CPI inflation accelerated to 3.6% in April. Real wages, however, plunged 2.1% year-over-year (YoY), intensifying fears of stagflation.  “Japan needs a major restructuring,” warned The Kobeissi Letter, highlighting the fragility of the nation’s economic model.…

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Filed under: News - @ May 27, 2025 9:29 am