Will Japanese Bond Yield Stabilization Spark a Rally in Bitcoin and Equities?

In the final week of May, global markets are surprisingly finding signs of stability—one of which stems from the Japanese bond market. On the previous day, Japan’s Ministry of Finance announced it would cut the issuance of long-term government bonds, while raising interest rates to control supply. At first glance, this might seem like a technical adjustment in issuance volume. But in truth, the statement sent a clear directional signal to the global capital markets far beyond Japan.

<Japan 10year bond>

<us 10 year bond>

Following the announcement, yields on 10-year Japanese government bonds dropped sharply, and the market began stabilizing. Remarkably, U.S. Treasury yields also fell significantly on the same day. This was not mere correlation. It reflected the fact that the Japanese and U.S. bond markets are deeply interconnected.

The QE Connection — Japan’s Liquidity Has Fueled U.S. Markets

The root of this connection lies in quantitative easing (QE). For decades, the Bank of Japan (BOJ) has managed domestic liquidity through asset purchases—not only acquiring Japanese government bonds, but also allocating portions of this liquidity into U.S. Treasuries. In effect, Japanese liquidity has long played a pivotal role not just in Japan’s own economy, but also in the stability of the U.S. bond market and broader global risk asset markets.

Japan Doesn’t Act Alone — Policy Alignment with the U.S.

This is why we can confidently say Japan does not design its liquidity policy in isolation. Historically, and still today, Tokyo closely coordinates with Washington in both timing and substance of its decisions. The latest Ministry of Finance statement is no exception. In a time when trust in the U.S. Treasury market is being tested, Japan is voluntarily stepping in to play the role of stabilizer.

So why is U.S. credibility under strain?

The Trust Problem — Tariffs and the Breakdown of Global Bond Demand

At the core lies the U.S.-led tariff wars. Since their onset, not only adversarial countries, but also close allies like Canada, Mexico, South Korea, and Japan, have clashed with the U.S. in trade matters. As a result, the traditional cycle—where export-led economies recycle their dollar surpluses into U.S. Treasuries—has begun to fray.

Countries around the world are starting to ask,"Are U.S. Treasuries still the default safe haven?"

This growing doubt has led to a decline in U.S. bond demand, and the effects are clear. The recent surge in Treasury yields is not primarily due to inflation or growth expectations, but rather a crisis of demand and credibility. That’s precisely why Japan stepped in this week—to signal stability and redirect global capital flows toward the U.S.

Japan’s Liquidity Heads for Treasuries — And That’s a Problem

Let’s unpack Japan’s policy. Reducing long-term bond issuance means that domestic liquidity will have fewer safe investment outlets. Yet with ongoing war, supply chain friction, and tariff uncertainty dominating the global landscape, that liquidity is unlikely to flow into riskier assets.

Instead, it will naturally move to the most familiar and safest asset class—U.S. Treasuries. Hence, Treasury yields plummeted after Japan’s announcement, and global markets stabilized.

But that alone won’t solve America’s fiscal problem.

Enter: SLR and the Stablecoin Act — The U.S. Gets Serious

Japan’s demand isn’t enough to absorb the sheer volume of new Treasuries that will be issued if the Trump administration’s tax cut bill passes—potentially adding trillions in new debt.

So the U.S. is now doing everything in its power to stabilize the bond market—starting with:

1. SLR (Supplementary Leverage Ratio) Adjustment

This move allows banks to hold more Treasuries without the same capital requirement burden.According to some analysts, this policy alone could lower the 10-year yield by 30–70bps or more. That’s how powerful it is.

2. The Stablecoin Act

The core of this bill is the definition of “reserve assets.” By requiring that stablecoin issuers hold reserves in either cash or U.S. Treasuries, the U.S. is turning the entire crypto ecosystem into a demand engine for Treasuries. As crypto market caps grow, so too will the demand for U.S. bonds.

The logic is clear: external inflows from countries like Japan + internal structural demand from banks and digital assets = a robust plan to secure Treasury market stability.

So Yes, the Market Is Fine — For Now

If we accept the above structural response, this moment isn’t bad for investors.

Markets have been fearful about three things: tariffs, debt, and growth. Let’s review them:

• Tariff risk? The next deadline is July 8, giving more than a month of breathing room. Plus, new trade agreements with India, Korea, and Japan are in the works. The U.S. has even hinted that a deal with India is imminent—a clear short-term bullish catalyst.

• Debt concerns? With SLR and the Stablecoin Act, plus falling yields, the bond market is re-entering stability. America is “all in” on stabilizing its debt market.

• Growth? U.S. consumer sentiment data has surprised to the upside, and today’s Nvidia earnings report is expected to beat forecasts. The AI-driven growth narrative remains intact.

We are entering a “Goldilocks” zone—where bond yields fall, liquidity returns, and risk assets find renewed confidence.

But Will It Last? Probably Not.

K3 Lab believes this rebound—while powerful—is unlikely to be long-lived. Why?

Because July brings a minefield of events:

• Early July: the debt ceiling X-date

• July 8: tariff suspension ends

• Mid-July: the tax bill’s fate in the Senate

Each of these can trigger volatility. Moreover, the U.S.-China trade war is not ending. It’s a structural power struggle, not a cyclical one. No side will back down easily.

That’s why we believe this rally may be big—but not durable.

Now is the time to increase cash positions and prepare for the next phase.

Conclusion: America Is Serious About Stabilizing Treasuries — But the Clock Is Ticking

Japan acted. The U.S. responded. Markets calmed.

But investors must do more than react—they must prepare.This rally is fueled by policy, not fundamentals.

And once July arrives, the questions of debt, tariffs, and growth will return with full force.Until then, enjoy the upside—but use it wisely.

Raise cash. Reposition. And wait for the next inflection point.