Bitunix Analyst: Japanese Government Bonds Become a New Source of Global Volatility, Influx of Foreign Capital Intensifies Risk Transmission

December 9th: Overseas investors are pouring into Japan’s Government Bonds (JGBs) at an unprecedented pace, with their trading volume now making up a record 65%—far above the 12% share it held 15 years ago. As the Bank of Japan (BOJ) cuts back on bond purchases and the government rolls out a major fiscal package, foreign capital has emerged as the key driver behind rising yields and heightened volatility. Yields on 30- to 40-year JGBs have hit multi-year peaks, pushing Japan from an “ultra-stable market” to a “global volatility generator.” While Japanese domestic institutions still hold more than 80% of outstanding JGBs (providing a degree of stability), foreign investors have high turnover and low capital stickiness. A sudden pullback by these investors could spark chain reactions, spilling over to U.S., U.K., and European sovereign debt markets. With inflation remaining above the BOJ’s 2% target, should the central bank hike rates again, it would push global interest rate volatility even higher. Bitunix analysts note: This week, markets will focus on two key factors: the Federal Reserve’s (Fed) rate-cut signals and the momentum of foreign capital in the JGB market. The Fed’s guidance on future rates and liquidity, paired with the JGB market’s inherent volatility, will jointly drive short-term global risk sentiment trends.